Featured Trade: Hang Seng at inflection zone for a potential downleg

Hang Seng Index recent recovery at risk of ending below 27680/28000 resistance.

Short-term technical outlook on Hong Kong 50 (Thurs, 20 Sep)



Key technical elements

  • The on-going corrective rebound of 6% from 26066 low of 11 Sep 2018 as seen in the Hong Kong 50 Index (proxy for the Hang Seng Index futures) has reached a significant inflection/resistance zone.
  • The Index is now hovering right below 27680/28000 where the 28000 level is being defined as the key medium-term pivotal resistance as per highlighted in our latest weekly technical outlook report (click here for the details).
  • Both the 4 and 1-hour Stochastic oscillator has reached their respective extreme overbought levels coupled with a bearish divergence signal seen in the 4-hour Stochastic oscillator. These observations suggest the upside momentum of the recent up move has started to wane.
  • The key short-term resistance stands at 27680 which is defined by a Fibonacci cluster (61.8% retracement of the recent decline from 28 Aug 2018 high to 12 Sep 2018 low & 0.764 extension of the up move from 11 Sep 2018 low to 14 Sep 2018 high projected from 18 Sep 2018 low) and the former minor swing low areas of 31 Aug/03 Sep 2018.
  • The short-term support rests at 27000 and 26640 which is defined by the lower boundary of the minor “bearish flag” configuration in place since 11 Sep 2018 low and the minor swing low area of 18 Sep 2018 (see 1 hour chart).

Key Levels (1 to 3 days)

Pivot (key resistance): 27680

Supports: 27000 & 26640

Next resistance: 28000 (medium-term pivot)

Conclusion

The post recovery seen in the aftermath of the latest round of U.S. tariffs imposed on USD200 billon worth of imports from China seems to be running of out momentum on the Hong Kong 50 Index.

Therefore as long as the 27680 short-term pivotal resistance is not surpassed, the Index is likely to see at least a potential short-term downleg to target the near-term support at 27000 and a break below 27000 exposes 26640 next.

However, a breach above 27680 shall put the bears on hold for a squeeze up to test the 28000 key medium-term pivotal resistance.

Charts are from City Index Advantage TraderPro



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