hang seng index potential final push up towards 23500 risk level before pull backconsolidation sets

Daily Outlook, Thursday 18 Aug 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has staged a recovery from yesterday’s low of 22744 which is being reinforced by a positive upturn seen in the major benchmark U.S. stock indices right into the close of the U.S. session and a better than expected earnings report from its highest weightage component stock, Tencent (0700).

The Hang Seng Index is one of the best performing Asian benchmark indices as it has soared close to 18% from the 24 August 2016 low (Brexit) and continued to break above its previous “minor swing highs”.

Key elements

• The Index is now fast approaching a risk zone of 23200/23500 which is defined by a confluence of factors as per highlighted in our current technical weekly outlook/strategy published on this Monday, click here for a recap. The 23200/23500 is defined by the potential exit target of the former “Triangle Range” bullish breakout, Fibonacci cluster and the 23 October 2015 medium-term swing high area.
• The daily (medium-term RSI) oscillator remains positive as it has not flashed any bearish divergence signal at its overbought region. In addition, the 4 hour Stochastic oscillator has just exited from its oversold region. The only negative reading from momentum studies comes from the shorter-term (1 hour) Stochastic oscillator as it has reached an extreme overbought level. Therefore,  we can conclude that upside momentum remains positive from a medium-term horizon (multi-week) but the Index faces the risk of a minor pull-back around the upper limit of the 23500 risk zone due to the extreme overbought reading seen on the hourly Stochastic oscillator.
• The lower boundary of the bullish ascending channel in place since 24 June 2016 low (Brexit) is now acting as a support at 22560.
• The key short-term support now rests at 22830 which is the opening gapped up seen in today’s Asian session.

Key levels (1 to 3 days)

Intermediate support: 23050

Pivot (key support): 22830 (gap)

Resistance: 23500

Next support: 22560

Conclusion

Maintain bullish bias for potential final push up. As long as the 22830 daily short-term pivotal support holds, the Index is likely to shape a potential push up to target the upper limit of the 23500 risk zone before another round of minor pull-back/consolidation materialises.

On the other, a break below the 22830 short-term pivotal support is likely to invalidate the preferred bullish scenario to see the start of the minor pull-back towards the next support at 22560 in the first step.

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