hang seng index weekly outlook for 03 aug to 07 aug 24900 will be the potential upside trigger level

(Click to enlarge charts)

What happened earlier

The Hong Kong 40 Index (proxy for the Hang Seng Index) has invalidated our expected bullish scenario as it has broken below the 24800 weekly pivotal support. However, it has managed to remain above the key long-term support at 23450.

Please click on this link for more details on our last weekly outlook.

*Please note that the weekly candlestick for 06 July to 10 July 2015 is erroneous as it did not have a weekly close below the 23450 support. This error will be rectified as soon as possible. 

Key elements

• The Index has tumbled by 6% from its 21 July 2015 high of 25611 in the past two weeks. Despite the recent spate of weakness, the Index is still holding above its key long-term support at 23450 which is the lower boundary of the long-term ascending channel in place since the 26 October 2008 cyclical bull market bottom (see weekly chart).
• The long-term Stochastic oscillator has inched higher from its oversold region and still has room for further potential upside before reaching its extreme overbought level (see weekly chart).
• The intermediate term RSI oscillator has retested and remained above its support just above the oversold region (see daily chart).
• The intermediate resistance stands at 24900 which is the 30 July 2015 swing high (see daily chart).
• The next significant resistance will be at 26400 which has confluences closing  with a Fibonacci cluster (61.8%/76.4% Fibonacci retracement from 27 Apr 2015 high @12pm to 08 Jul 2015 low @12pm + 1.00 Fibonacci projection from 08 Jul 2015 low @12pm to 27 Jul 2015 low @8pm) (see 4 hour chart).
• The recent 6% decline has managed to stall close to the 50% Fibonacci retracement of the recent upmove from 08 Jul 2015 low @12pm to 21 Jul 2015 high @12pm at the 24000 level (see 4 hour chart).
• The short-term Stochastic oscillator has managed to inch higher from its oversold region (see 4 hour chart).

Key levels (1 to 3 weeks)

Intermediate support: 24000

Pivot (key support): 23450

Resistance: 24900, 26400 & 27000

Next support: 21170

Conclusion

The recent decline appears to have stabilised at the key 24000/23450 support zone but it needs to break above the 24900 intermediate resistance in order to trigger a potential upside movement to target 26400/27000 next.

On the other hand, failure to hold above the 23450 key pivotal support is likely to damage the long-term bullish trend to see the start of a potential severe correction to target the next support at 21170 in the first instance.

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