Hong Kong Stocks May Break 12-Year Uptrend as Tepid Rebound Stalls

2020-05-21 04:00:00

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HANG SENG INDEX Technical ANALYSIS – TALKING POINTS:
HANG SENG INDEX TRADING RESOURCES:

HANG SENG INDEX Technical ANALYSIS – TALKING POINTS:

Hong Kong stocks recovery ran out of steam at key chart barrier
Next steps from here may be defining for the long-term price trend
Relatively modest selloff may bring an end to a 12-year advance

Hong Kong’s equities benchmark, the Hang Seng Index (HSI), has stalled after a tepid recovery from March lows. Much like the rest of the pro-risk asset universe – global equities as well as cyclical currencies and commodities – that rise looks to have been inspired by the Fed’s heroic stimulus efforts in the face of a would-be credit crisis triggered by the Covid-19 outbreak.

Prices have now broken upward-sloping support establishing the path of that recovery, settling in a narrow range. Tellingly, the loss of upward momentum followed a retest of support-turned-resistance at 24791, the mid-August 2019 swing low base for the uptrend preceding the coronavirus-triggered selloff. How HSI behaves here can define recent gains as either purely corrective or marking the start of a larger rally.

A daily close above resistance may thus neutralize near-term selling pressure and open the door for another challenge of former support in the 25507-949 area. Pushing through that puts rising trend line support – now just above the 27000 figure – back into the crosshairs. Alternatively, breaking through the range floor at 23241 faces a swing low barrier at 22561 along the way to the yearly low at 20965.

Hang Seng Index daily chart created using TradingView

Zooming out to the monthly chart bolsters the significance of what transpires at current levels. The first quarter’s violent selloff has challenged rising trend support guiding the long-term recovery from the low set in the wake of the 2008-2009 global financial crisis. A relatively modest downward push from here may thus translate into a tectonic trend change.