hang seng index weekly outlook 12 oct to 16 oct further potential push up above 2226022180 support 1

(Click to enlarge charts)

What happened last week

The Hong Kong 40 Index (proxy for the Hang Seng Index) has managed to stage a bullish breakout of its former range top in place since 25 August 2015 at 22260 on 07 October 2015. The “last push down” scenario to retest the “Black Monday”, 24 August 2015 low of 20070 has been invalidated.

Please click on this link for a review on our prior updated weekly outlook.

Key elements

• The Index has staged a bullish breakout from a “Double Bottom” chart configuration with its pull-back support now at 22260/22180 (see daily chart)
• The daily (medium-term) RSI oscillator remains bullish above its 50% neutrality level and still has room for further potential upside before reaching its overbought region (see daily chart).
• The  4-hour (short-term) Stochastic oscillator has also started to inch upwards and showing potential for further upside towards its extreme overbought level (see 4 hour chart).
• Both the aforementioned momentum indicators (daily RSI & 4-hour Stochastic) are suggesting that upside momentum remains intact.
• The medium-term (1 to 3 weeks) significant resistance stands at 23500/24000 which is defined by the exit potential of the “Double Bottom” bullish breakout, descending trendline joining the highs since 26 May 2015 and the 50% Fibonacci retracement of the down move from 26 May 2015 high to 24 August 2015 low.
• Based on the Elliot Wave Principal, the price action of the Index from the 29 September 2015 low appears to be impulsive (bullish) in nature and it is undergoing a five wave structure from a lesser degree of wave 1/ with a risk zone at the 23500/24000 resistance (potential end of wave 1/). This observation indicates a potential deeper retracement may take place at the 23500/ 24000 resistance to see a corrective (down) wave 2/.

Key levels (1 to 3 weeks)

Pivot (key support): 22260/22180

Resistance: 23500/24000 & 25500

Next support: 21370 & 20290/20070

Conclusion

Based on the current positive technical elements, we have maintained our bullish bias for the Index. The weekly pivotal support has been tightened to 22260/22180 (from 21700) to see a further potential push up towards the 23500/24000 resistance (risk zone for a deep correction to occur).

On the contrary, failure to hold above the 22260/22180 pivotal support (neckline of the “Double Bottom” bullish breakout) is likely to be considered as a “bull trap” to see another round of choppy price action to retest 21370 and even the range support at 20290/20070.

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