Featured Trade Bullish exhaustion seen in Hang Seng Index below key MT resistance

Short-term technical outlook on Hong Kong 50 (Fri 01 Feb)

Key technical elements

• The Hong Kong 50 Index (proxy for Hang Seng Index futures) has challenged the predefined 28000 key medium-term pivotal resistance as per highlighted in our weekly technical outlook report published earlier this Mon (click here for a recap). The Index printed a high of 28215 in today, 01 Feb Asian opening session before it reversed down below the 28000 level.
• Interestingly, the aforementioned price action’s negative reaction at the 28000 key medium-term pivotal resistance has occurred right at the upper boundary of an “Expanding Wedge” range configuration in place since 26 Oct 2018 low of 24487 (see 4-hour chart).
• The hourly price action has formed a “Bearish Engulfing” candlestick pattern coupled with a bearish divergence signal seen in the 4-hour Stochastic oscillator at its extreme overbought level. These observations suggest that the upside momentum of the recent up move has started to wane.
• The next significant near-term support rests at 27370 which is defined by the minor swing low area of 29 Jan 2019 and the 23.6% Fibonacci retracement of the entire up move from 03 Jan 2019 low to the key medium-term pivotal resistance swing high area of 28000/215.
• An important point to highlight in terms of intra market analysis, the Hong Kong 50 Index (proxy for Hang Seng Index futures) is the outperformer among the major stock indices that we track where it printed its swing low earlier in 26 Oct 2018 versus the rest of the indices (S&P 500, Nasdaq 100, DAX, ASX 200) where their respective swing lows came in much later in 24/26 Dec 2018 before the rebound kick started on a global scale. Therefore, if the Hong Kong 50 Index continues to stage a further decline and break below the 26740 medium-term downside trigger, it may play a leading role to drag down the rest of the major stock indices into a fresh bearish impulsive down move phase.

Key Levels (1 to 3 days)

Pivot (key resistance): 28000/215 (excess)

Supports: 27650 & 27370

Next resistance: 29100

Conclusion

The Index has started to show signs of bullish exhaustion at the 28000 key medium-term pivotal resistance. Thus if it manages to hold at the 28000/215 (excess) resistance level, it is likely to stage a further potential slide to target 27650 follow by the next near-term support at 27370. A break below 27370 opens up scope for a further decline towards the 26740 key medium-term downside trigger level.

On the other hand, a daily close above 28000/215 invalidates the bearish scenario for a further corrective rebound towards the next resistance at 29100 (swing high area of 26 Jul 2018 & 61.% Fibonacci retracement of the recent down move from 29 Jan 2018 all-time high of 33530 to 26 Oct 2018 low.