hang seng daily outlook wed 06 apr 2016 short term consolidationrebound is likely to be capped below

(Click to enlarge chart)

What happened earlier/yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has tumbled yesterday as expected but has not hit our expected short-term downside target (support) of 19800.

It traded sideways throughout the European/early U.S. session before it inched higher this morning, 06 April 2016 reinforced by a better than China Caixin Services PMI figure for Mar which is at 52.2 versus a February reading of 51.2.

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

Key elements

• Based on the Elliot Wave principal, the Index has shaped a 5 waves impulsive downside movement from its high of 20994 seen on 30 March 2016 to yesterday low of 20068. The hourly Stochastic oscillator has also shaped a bullish divergence at its oversold region (a slowdown in upside momentum of price action) Therefore, right now we are shaping a consolidation/rebound to retrace the 5 waves downside movement.
• A typical retracement (expected target for the consolidation/rebound) for a 5 waves downside movement stands at 50%/61.8% which also coincides with the 01 April 2016    minor swing high of 20520.
• Right below 20520, there is a short-term trendline resistance that has linked the lower highs since 30 March 2016 high@11pm that is capping the Index at 20340/425.
• The next significant support rests at 19800 which is defined by the swing lows area of 03/09/11 March 2016 and the 38.2% Fibonacci retracement of the prior countertrend rally from 12 February 2016 low to 30 March 2016 high of 20988

Key levels (1 to 3 days)

Intermediate resistance: 20340/425

Pivot (key resistance): 20520/630

Support: 19800

Next resistance:  21000 (weekly/medium-term)

Conclusion

Right now, we are shaping a potential consolidation/rebound to retrace the downward movement from 30 March 2016 high of 20994. Intermediate resistance stands at 20340/425 with the short-term daily pivotal resistance at 20520/630 which is likely to cap the rebound for another potential downleg to target the 19800 support.

However, a clearance above the 20520 short-term pivotal resistance is likely to negate the bearish tone to see a push up for a retest the 21000 weekly pivotal resistance.

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