hang seng index weekly outlook 02 nov to 06 nov in consolidation phase above 2226022180 key support

(Click to enlarge charts)

What happened last week

The Hong Kong 40 Index (proxy for the Hang Seng Index) has broken below the 22720 weekly pivotal support and tumbled towards the alternate target at 22260/22180.

Please click on this link for a review on our prior weekly outlook/strategy

 Key Economic Data Release/Events

• 04 Nov (Wed) – Caixin China Services PMI for Oct @0145 GMT
• 04 Nov (Wed) – Hong Kong Manufacturing PMI for Oct @0230 GMT

Key elements

• Current price action is now resting at the 22260/22180 pull-back support of the “Double Bottom” bullish breakout which also coincides with the 38.2% Fibonacci retracement of the recent up move from 29 September 2015 low to 23 October 2015 high @8pm (see 4 hour chart).
• The daily (medium-term) RSI oscillator is also resting at its corresponding pull-back support. In addition, the 4 hour (short-term) Stochastic oscillator has just exited from its oversold region (see daily & 4 hour charts). These observations suggest that the downside momentum of the recent slide has started to abate (see daily & 4 hour charts).
• The recent ascend of the Index is being halted in the third attempt by the trendline resistance (in dotted red) linking the highs since 26 May 2015 high @8am now capping the Index at 23100 (see 4 hour chart).
• The exit potential of the “Double Bottom” bullish breakout stands at 24120/24370 which also confluences closely with a graphical resistance seen between 27 July to 13 August 2015 and a Fibonacci cluster (50% Fibonacci retracement of the steep down move from 27 April 2015 high to 24 August 2015 low + 61.8 Fibonacci projection from 24 August 2015 low to 23 October 2015 high @8pm projected from the current low of 02 November 2015) (see 4 hour chart).
• Based on the Elliot Wave Principal, the Index appears to be undergoing a potential corrective (bearish) wave 4/ with key support at 22260/22180 within a larger degree bullish impulsive wave structure (see 4 hour chart)

Key levels (1 to 3 weeks)

Pivot (key support): 22260/22180

Resistance: 23100, 24120/24370 & 25000/25500

Next support: 20290/20070

Conclusion

The Index is now undergoing a consolidation phase above the 22260/22180 weekly pivotal support and it needs to break above the 23100 intermediate resistance in order to resume its medium-term upside movement to target the 24120/24370 resistance zone.

On the contrary, failure to hold above the 22260/22180 pivotal support is likely to damage the medium-term bullish trend in place since the “Black Monday”, 24 August 2015 low for a further correction to target the range support linking the lows of 24 August and 29 September 2015 at 20290/20070.

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