hang seng daily outlook thurs 02 june 2016 further potential decline below 2084021100 1813992016

(Click to enlarge chart)

What happened earlier/yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index future) has continued to trade in a sideways fashion below the 21100 pivotal resistance but technical elements are still weak.

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

Key elements

The Index has started to trace out a series of “lower highs” (highlighted by the pink boxes) right below the descending trendline resistance (in dotted red) in place since 26 October 2015 high.
The hourly (short-term) RSI oscillator has continued to remain below the pull-back resistance which implies that downside momentum of price action remains intact.
The near-term supports remain at 20500 (minor swing low of 30 May 2016 + pull-back support) follow by 20270 (50% Fibonacci retracement of the current rally from 19 May 2016 low to 31 May 2016 high of 20998 + short-term ascending trendline from 19 May 2016 low).

Key levels (1 to 3 days)

Intermediate resistance: 20840

Pivot (key resistance): 21100

Supports: 20500 & 20270

Next resistance: 21650

Conclusion

Bearish bias remains unchanged. As long as the 21100 pivotal resistance is not surpassed, the Index is likely to see a decline to test the 20500 support in the first step. A break below 20500 may trigger a further downside movement towards the next support at 20270.

However, a clearance above the 21100 pivotal resistance is likely to invalidate the expected bearish move to open up scope for a further rally towards the next resistance at 21650 (21/28 April 2016 swing high area).

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