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Hang Seng Index Technical Outlook: Slide Lower Pauses. Now What?

Hang Seng Index Technical Outlook: Slide Lower Pauses. Now What?

Manish Jaradi, Strategist

HANG SENG, HK Equities, HSI - Technical Outlook:

  • The Hang Seng Index’s rebound from deeply oversold conditions appears to be a pause.
  • The broader trend remains down.
  • To what extent can the index rebound further and what are the key levels to watch?

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HANG SENG INDEX TECHNICAL OUTLOOK - BEARISH

The Hang Seng Index (HSI) has run into stiff resistance, raising the risk of a retreat and possibly the resumption of the medium-term downtrend.

On intraday charts, the rise on Friday above a minor horizontal trendline from the end of October triggered a minor inverse Head & Shoulders pattern (the left shoulder at the October 25 low, the head at the October 31 low, and the right shoulder at the Thursday low). The price objective of the pattern works out to about 17050. Interim resistance is on the 200-hour moving average, and a stronger barrier is at the March low of 18235.

Last week’s rebound comes from deeply oversold conditions and the tentative stabilization in risk sentiment – a possibility that we highlighted at the end of last month.

Hang Seng Index Hourly Chart

image1.png

Chart Created Using TradingView

So long as HSI holds above the 15300-15800 support area, a move toward the price objective is possible. However, as with all technical patterns, the price objective tends to serve as a guide, and not a rule. That is, when there is a cluster of resistance, then more often than not the market tends to respect the barrier even though the price objective of the pattern is slightly above the hurdle. If the Hang Seng Index falls below the cushion at 15300-15800, then the 200-hour moving average could mark the peak in the current rebound.

Hang Seng Index Monthly Chart

image2.png

Chart Created Using TradingView

Zooming out, the broader trend remains down, as reflected by the negative Moving Average Convergence Divergence indicator (MACD) on the weekly, monthly, and quarterly charts. A negative reading of the MACD signifies a downtrend and vice versa. The downtrend in the Hang Seng Index has accelerated this year after it fell below an uptrend line from 2016 (that came at about 22600). The break triggered a major Head & Shoulders pattern (the left shoulder is at 2015 high, the head is at 2018 high, and the right shoulder is at 2021 high), implying a potential move towards the Great Financial Crisis low of 10676.

--- Written by Manish Jaradi, Strategist for DailyFX.com

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