hang seng index weekly outlook 24 aug to 28 aug bearish tone prevails but expect a potential rebound

(Click to enlarge charts)

What happened earlier

The Hong Kong 40 Index (proxy for the Hang Seng Index) has broken below long-term trendline support in place since 26 October 2008 low. This breakdown in price action has invalidated our multi-month (Q3 2015) bullish scenario for the Index.

Key elements

• The next significant support stands at 19400 which are defined by the mega long-term ascending trendline in place since December 1987 and a Fibonacci cluster (see monthly chart).
•  Based on the Elliot Wave Principle, the Index is in a (a),(b),(c) “Flat” correction configuration of a larger degree wave B that has started from the high of 07 November 2010. From the 26 April 2015 high of 28600, current price movement is in the midst of undergoing the bearish (c) leg of the “Flat” correction that consists of a minimum of five waves from a lesser degree (see weekly chart).
• The intermediate support at 19800 is defined by the 1.00 Fibonacci projection from 26 May 2015 high to 21 July 2015 high (see daily chart).
• The short-term Stochastic oscillator has dipped back into the extreme oversold level which highlights the risk of a short-term rebound in price action of the Index (see 4 hour chart).
• The medium-term significant resistance zone at 22710/23450  (former support zone) also corresponds closely with the 38.2%/50% Fibonacci retracement of the recent steep down move from 21 July 2015 high @12pm to the current 24 August 2015 low (see daily & 4 hour charts).

Key levels (1 to 3 weeks)

Intermediate resistance: 22710

Pivot (key resistance): 23450

Support: 19800 & 19400

Next resistance: 24900

Conclusion

Technical elements remain bearish but on a short-term basis it cannot be ruled out that the Index may see a potential “snap-back” rally at this juncture due to the recent overextended decline.

Above 21000, the Index is likely to see a short-term rebound towards the intermediate resistance at 22710 with a maximum limit set at the 23450 weekly pivotal resistance before another downside movement materialises to target 19800 and even the next significant long-term support at 19400.

On the contrary, a clearance above the 23450 pivotal resistance is likely to damage the bearish tone to see a squeeze up to test the trendline resistance joining the highs since 26 May 2015 at 24900.

Source:  Charts are from eSignal & City Index Advantage Trader

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