hang seng daily outlook wed 20 apr 2016 further potential weakness ahead 1807182016

(Click to enlarge charts)

What happened earlier/yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has tried to stage a bullish breakout above the 21530 pivotal resistance in a “thin” trading environment during yesterday’s U.S. session (printed a high of 21587).

Interestingly, yesterday’s push up in price action did not get a positive follow through today, 20 April 2016 as the Index staged an opening gap down in the morning session. Therefore, our short-term bearish view remains intact. Please click here for a recap on our previous daily short-term outlook/strategy.  

Key elements

• Despite yesterday’s push up in price action, the rally has stalled right at the short-term pull-back resistance of a former trendline support (in dotted red) from 08 April 2016 low @9a.m (see 1 hour chart). Thus on the medium to short-term, 21530 remains the key resistance which is defined by pull-back resistance of the former ascending channel’s lower boundary bearish breakout (see 4 hour chart).
• The first near-term support rests at 21000 (18 April 2016 minor swing low, seen after the failed Doha talks and now the neckline support of a mini bearish “Double Top”). The next support stands at 20600 (the pull-back support of the former descending trendline bullish breakout, in dotted pink as highlighted on the 4 hour chart).
• Short-term upside momentum has started to show signs of exhaustion. The 4 hour Stochastic oscillator has flashed a bearish divergence signal at the overbought region and still has room for further downside potential before reaching the extreme oversold level.
• Intermarket analysis – the China A50 Index has tumbled the most in the past 7 weeks and it is now breaking below the neckline of a bearish “Double Top” chart configuration and fast approaching the first support at 9400 where a break below it is likely to unleash more weakness. This observation has been highlighted earlier in our weekly outlook/strategy published this Monday, click here for a recap (Weekly strategy chart attached over here, please see the last chart).

Key levels (1 to 3 days)

Pivot (key resistance): 21530

Supports: 21000 & 20600

Next resistance: 21960

Conclusion

As long as the 21530 pivotal resistance is not surpassed, the Index is likely to a further decline towards our expected short-term downside target at 21000 and a break below it may trigger further weakness towards the next support at 20600.

On the flipside, a clear break above the 21530 pivotal resistance is likely to see an extension of the countertrend rally from 12 February 2016 low to target the next resistance at 21960 in the first step.

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