ftse china a50 weekly outlook for 22 june to 26 june potential corrective rebound before new drop wa

(Click to enlarge charts)

What happened last week

The China A50 Index (proxy for the FTSE/Xinhua China A50) has plunged lower and hit our expected downside target at 12860.

Please click on this link for a review on our previous weekly outlook

Key elements

• The Index has broken below the lower boundary of medium term ascending channel (in brown) now turns pull-back resistance at 13640 (see daily chart).
• The Index has also triggered a “Double Top” bearish breakout through the break of its former neckline support now turns pull-back resistance (in dotted red) at 13965 (see 4 hour chart).
• The exit potential of the “Double Top” bearish breakout stands at 11810 which also confluences closely with a graphical support and the 38.2% Fibonacci retracement of the up move from 20 March 2014 low to 09 June 2015 high at 11670 (see daily & 4 hour charts).
• The intermediate term RSI oscillator remains bearish through the break of its former significant trendline support (seed daily chart).
• The short-term Stochastic oscillator has flashed a bullish divergence signal at its oversold region which suggests that a potential short-term rebound is round the corner (see 4 hour chart).
• Based on the Elliot Wave Principle, the Index has traced out a 5 wave downside movement since 09 June 2015 high with its extended 5^th wave target at 12150 (1.00 Fibonacci projection from 09 June 2015 high to 17 June 2015 high) which is very close to the low printed last Friday, 19 Jan 2015 at 12211). This observation also suggests that a potential corrective rebound is round the corner after a 5 wave downside movement completes close to its 5^th wave target of 12150 (see 4 hour chart).
• The 13640/13965 significant resistance also confluences closely with the 50%/61.8% Fibonacci retracement of the recent steep down move from 09 June 2015 high to 19 June 2015 low (see 4 hour chart).

Key levels (1 to 3 weeks)

Intermediate resistance: 13640

Pivot (key resistance): 13965

Support: 12150 & 11810/11670

Next resistance: 15000

Conclusion

Technical elements remains bearish in the medium term through the bearish breakouts seen on its former medium term ascending channel’s lower boundary  and “Double Top” bearish chart formation.

However on the shorter-term, the Index is likely to see a rebound first above the 12150 intermediate term support towards 13640 with a maximum limit set at the 13965 weekly pivotal resistance before another round of potential downside movement occurs to target the 11810/11670 significant support zone.

On the other hand, a break above 13965 is likely to invalidate the medium term bearish scenario for a push up to retest the 15000 significant range top resistance.

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