hang seng daily outlook thurs 21 jan 2016 pull back before another potential upleg 1794172016

(Click to enlarge charts)

What happened yesterday

The Hong Kong 40 Index (proxy for the Hang Seng Index) has tested the 18900/700 short-term pivotal support in the U.S. session before staging a “gap-up” opening today, 21 January 2016  in line with the sharp rally seen in all major U.S. indices during the mid U.S. session.

Please click on this link for a recap on our previous daily outlook/strategy.

Key elements

• This morning “gapped –up” in price action is coming close to our short-term upside target at 19340/447 (gap resistance seen on Tuesday,19 January 2016 and the upper boundary of the “Expanding Wedge”.
• The hourly (short-term) Stochastic oscillator is coming close to its extreme overbought level which suggests limited upside potential in price action. Taking into consideration of this observation and in conjunction with current price action as abovementioned, the Index now faces the risk of a pull-back below 19340/447.
• The next significant resistance stands at 20226/380 which is former range bottom of “Black Monday” 24 August 2015 and 29 September 2015 now turns pull-back resistance and close to the 50% Fibonacci retracement of the steep decline from 24 December 2015 high to yesterday’s low (see daily chart).
• The daily (medium-term) RSI oscillator still has room for further upside before reaching its resistance and 50% neutrality level. This observation suggests that the on-going push up in price action is unlikely to end at this juncture.

Key levels (1 to 3 days)

Pivot (key support): 18900/700

Resistance: 19340/447 & 20226/380

Next support: 18200

Conclusion

Below 19340/447 intermediate resistance, the Index may see a minor-pull back towards the 18900/700 pivotal support before another potential push up to target the 20226/380 significant medium-term resistance.

On the other hand, failure to hold above the 18900/700 pivotal support is likely to open up scope for a further decline towards the medium-term downside target of 18200 (click here for our latest weekly outlook/strategy).

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.