hang seng index weekly outlook 19 oct to 23 oct risk of consolidationpull back below 2350024000 risk

(Click to enlarge charts)

What happened last week

The Hong Kong 40 Index (proxy for the Hang Seng Index) has rallied as expected and almost met the lower limit of the upside target zone at 23500 (printed a high of 23195 on last Friday, 16 October 2015).

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

Key elements

• The recent upswing in price action from the 29 September 2015 low is now coming close to a significant medium-term resistance zone at 23500/24000 which is defined by the descending trendline joining the highs since 26 May 2015, the 50% Fibonacci retracement of the down move from 26 May 2015 high to 24 August 2015 low and the exit potential of the “Double Bottom” bullish breakout (see daily & 4 hour charts).
•  The next resistance stands at 25500 which is the swing high area of 20/21 July 2015 that confluences with 61.8% Fibonacci retracement of the down move from 26 May 2015 high to 24 August 2015 low (see 4 hour chart).
• The daily (medium-term) RSI remains bullish above its support and the 50% neutrality level but on the shorter-term (4 hour) Stochastic oscillator has just exited from its overbought region and still has room for further downside before reaching its oversold region. This observation on the short-term (4 hour) Stochastic oscillator suggests the risk of a pull-back/consolidation in price action of the Index (see daily & 4 hour charts).
• 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 a five wave structure of a lesser degree is almost completed for wave 1/ with a risk zone at the 23500/24000 resistance (potential end of wave 1/). This observation indicates a potential deeper retracement to take place below the 23500/ 24000 resistance zone to see a corrective (down) wave 2/.
• The significant medium-term support remains at 22260/22180 which is the pull-back support of the “Double Bottom” bullish breakout and the 38.2% Fibonacci retracement of the up move from 29 September 2015 low to the risk zone of 23500/24000 (see 4 hour chart).

Key levels (1 to 3 weeks)

Pivot (key support): 22260/22180

Resistance: 23500/24000 & 25500

Next support: 21370 & 20290/20070

Conclusion

The Index is now approaching the risk zone of 23500/24000 where it may see a deeper retracement towards the 22260/22180 weekly pivotal support. Thereafter, a potential upleg is likely to materialise to kick start the bullish wave 3/ to target the next resistance at 25500.

However, a break below the 22260/22180 key pivotal support is likely to invalidate the bullish expectation for a deeper slide towards 21370 before the range support at 20290/20070.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.