hang seng index daily outlook for wed 19 aug key support at 23450 has been violated risk of further

(Click to enlarge charts)

What happened yesterday

The Hong Kong 40 Index (proxy for the Hang Seng Index) has pierced below the lower limit of the long-term key support at 23450. This horrendous slide is caused by a 6% sell-down seen in the Shanghai Composite Index as local media reported that some Chinese brokerages have resumed margin lending and short-selling facilities.

Please click on this link for a recap on our previous daily outlook.

Key elements

• The long-term key support at 23650/23450 (lower boundary of the ascending channel in place since 26 October 2008) has been broken. As this support is defined by the weekly chart, a weekly close below the lower limit at 23450 is required to invalidate the long-term bullish trend (see weekly chart).
• The short-term steeper trendline resistance joining the highs since 11 August 2015 @9am is capping the Index at 23650 (see 1 hour chart).
• The significant 8 July 2015 key reversal swing low at 22710 confluences closely with the 1.236 Fibonacci projection from 21 July 2015 high @1pm to 11 August 2015 high @9am at the 22870 level (see 1 hour chart).
• The hourly Stochastic oscillator still has some room for further downside before reaching its extreme oversold level (see 1 hour chart).

Key levels

Intermediate resistance: 23390

Pivot (key resistance): 23650

Support: 22870/22710

Next resistance: 24120 & 24500

Conclusion

The Index is required to have a weekly close below 23450 in order to invalidate the long-term bullish trend. However in the shorter-term (1 to 3 days), technical elements remain bearish and we cannot rule out the risk of a further slide towards the 22870/22710 support zone holding below the short-term key resistance of 23390/23650.

Only a break above the 23650 daily pivotal resistance is likely to dampen the current bearish tone for a potential recovery to target 24120 before 24500.

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