hang seng daily outlook tues 10 may 2016 potential push up below 20500600 resistance before decline

(Click to enlarge charts)

What happened earlier/yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has traded sideways and failed to break below last Friday low of 19993.

In this morning session 10 May 2016, the Hong Kong 50 Index has managed to inch higher due to a better than expected Producer Price Index reading for April as the PPI fell 3.4% y/y versus market expectations of -3.8%. In addition, the Consumer Price Index rose 2.3% y/y in April which is in line with consensus for the third consecutive month. All these data managed to mitigate the risk of deflation in China.

Key elements

Despite this positive price movement seen in the morning session has not alter the medium-term bearish trend for the Index. Near-term resistance stands at the 20500/600 zone which is defined by the minor swing high area of 05 May 2016 and the 38.2% Fibonacci retracement of the recent decline from 28 April 2016 high of 21649 to last Friday’s low. Please click link to recap our latest weekly outlook/strategy published yesterday.
The hourly (short-term) Stochastic oscillator has exited from its oversold region and still has room for further upside before reaching an extreme overbought level. These observations suggest that short-term upside momentum remains intact to support a minor push up in price action.

Key levels (1 to 3 days)

Pivot (key resistance): 20500/600

Support: 19850

Next resistance: 21060 (weekly pivot)

Conclusion

The current medium-term bearish trend in place since the decline from 28 April 2016 high remains intact. In the short-term, the Index may see a push up first towards close to the daily short-term pivotal resistance of 20500/600 before another potential downside movement materialises to target the next support at 19850 (the 9/11 March 2016 swing low areas) in the first step.

On the other hand, a break above the 20500/600 short-term pivotal resistance is likely to put the bears on hold to see a steeper push up to test the 21060 weekly pivotal resistance (neckline resistance of the recent minor “Toppish” configuration bearish breakout).

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