hang seng index daily outlook fri 23 oct minor pull back before new rise above 22780 support 1642712

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What happened yesterday

The Hong Kong 40 Index (proxy for the Hang Seng Index) has rallied in the European session and in today’s morning session; it has tested the 23170 short-term pivotal resistance before staging a minor retreat.

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

Key elements

• The daily (medium-term) RSI oscillator remains bullish above its trendline support and the 50% neutrality level which suggests that medium-term upside momentum remains intact.
• The significant medium-term resistance zone remains at 23500/24000 which is defined by the descending trendline joining the highs since 26 May 2015, the 50% Fibonacci retracement of the down move from 26 May 2015 high to 24 August 2015 low and the exit potential of the “Double Bottom” bullish breakout
• The short-term support to watch now will be at 22780 which is defined by the former short-term range top congestion area from 09 October to 13 October 2015 and the pull-back support (in dotted green) from the 16 October 2015 high.
• The hourly (short-term) Stochastic oscillator has turned down from its overbought region and still has room for further downside before reaching its oversold region. This observation highlights the risk of a minor pull-back in price action.

Key levels (1 to 3 days)

Pivot (key support): 22780

Resistance: 23500/23600 & 24000

Next support: 22260/22180

Conclusion

Based on inter-market relationships/observations, the probability of a “deeper pull-back” scenario has been reduced. Right now, any potential pull-back is likely to be held by the 22780 daily (short-term) pivotal support for another round of upside movement to target the 23500/23600 resistance.

However, a break below the 22780 pivotal resistance is likely to negate the bullish tone to see another round of choppy price action to retest the key medium-term support at 22260/22180 (the neckline of the “Double Bottom” bullish breakout).

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