hang seng index daily outlook thurs 22 oct no strong conviction for the last push up scenario turn b

(Click to enlarge charts)

What happened earlier

The Hong Kong market has resumed trading after closing for a public holiday yesterday. This morning, the Hong Kong 40 Index (proxy for the Hang Seng Index) has gapped down by 195 points (0.8%) from the 20 October 2015 closing level of 22992.

Despite the weak price movement seen in today’s morning session, the Index has continued to hold above the 22750 short-term pivotal support as per highlighted in our prior daily outlook (click here for details).

Key elements

• The hourly (short-term) RSI oscillator has broken below its former trendline support (in dotted red) and still has some room for further downside before reaching its extreme oversold level. This observation suggests that the Index may see further weakness in price action. Prior to the breakdown of its support, the RSI oscillator has flashed a bearish divergence signal.
• The medium-term key support stands at the 22260/22180 zone which is the neckline of the “Double Bottom” bullish breakout.
• Based on the Elliot Wave Principal, the Index has reacted from the 5^th wave target at 23170 which is the 0.764 Fibonacci projection that starts from 29 September 2015 low to 06 October 2015 high @9am projected from 06 October 2015 low @4pm. This observation suggests the Index is likely to have completed the bullish impulsive wave 1/ structure at 23170 and should now undergo a corrective wave 2/ before another round of upside movement materialises for the impulsive wave 3/.

Key levels (1 to 3 days)

Pivot (key resistance): 23170

Support: 22750 & 22260/22180

Next resistance: 23500/23600

Conclusion

Even though, the Index has not break below the prior short-term pivotal support at 22750 but current technical elements (as per aforementioned) has turned negative and does not justify the case for a “last push up” scenario to test the 23500/23600 resistance.

Therefore, it is likely that the Index is now at pull-back/consolidation phase to retrace the 14% rally seen from the 29 September 2015 low (as per mentioned in our weekly outlook published on Monday).  As long as the daily (short-term) pivotal resistance at 23170 is not surpassed and a break below the 22750 level, the Index may see a deeper slide to retest the key 22260/22180 support zone.

On the flip side, a clearance above the 23170 short-term pivotal resistance is likely to jeopardise the bearish tone for a squeeze up to test the key medium-term resistance at 23500/23600.

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