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Is the rally over for Hong Kong's stock market?

Is the rally over for Hong Kong stock market?

Hong Kong is the second best performing Asian stock market this year as her benchmark Hang Seng Index has soared by 17% from 02 January 2015 to 30 April 2015 just behind the “red hot” Shanghai Composite Index (see performance chart as above).

Most of the gain seen in the Hang Seng Index has been attributed in the month of April 2015 and a jump in liquidity from the Shanghai-Hong Kong Stock Connect program (a catch up play in terms of performance after lagging behind the Shanghai Composite since Q3 last year).

However since the start of May 2015, the Hang Seng Index has tumbled by around 4% to print a low of 27207 on 07 May 2015. Interestingly, we have also started to see a lot of media reports that highlight the current rally seen in the China stock market is not sustainable.

Also, we are now in the dreaded month of May, thus will the curse of “sell in May and go away” be cast on the Hong Kong stock market?

Let’ us take a look at the current technical elements of the Hang Seng Index to decipher its expected performance going forward.

Key elements

  • The Index has reacted off the median line (resistance) of its long-term ascending channel (in green) in place since 26 October 2008 at 28600 (see weekly chart).
  • The long-term MACD trend indicator continues to trend upwards steadily above its centreline and it still has room before reaching its “extreme” level seen in October 2007. This observation suggests that the on-going multi-month bullish trend remains intact (see weekly chart).
  • The intermediate term Stochastic oscillator has dipped into its oversold region which suggests limited downside potential for the current down movement seen from the 27 April 2015 swing high (see daily chart).
  • Current price action is coming close to the pull-back support of the former intermediate term ascending channel breakout (from 26 June 2013 low, in dark blue) is at 26900 (see daily chart)
  • The 26900 support also coincides closely with the 38.2% Fibonacci retracement (typical corrective wave 4 target) of the up move  from 11 March 2015 low to 27 April 2015 high at 26670 (see daily chart).
  • The 30150/30500 resistance zone also confluences with multiple Fibonacci projection clusters (see daily chart).

Key levels (1 to 3 months)

Intermediate support: 26900
Pivot (key support): 26670
Resistance: 28600 & 30150/30500
Next support: 25150/25000

Conclusion

The Index has drifted back down towards its pull-back support at 26900 with some positive technical elements. As long as the 26670 monthly pivotal support holds, the Index is likely to resume its multi-month bullish trend to retest the 27 April 2015 swing high at 28600 before targeting the 30150/30500 resistance zone.

On the other hand, failure to hold above 26670 may damage the multi-month bullish trend for a deeper decline towards the long-term significant support at 25150/25000 (former resistance that capped the Index since October 2010).

Source: Charts are from City Index Advantage Trader

Disclaimer

The information contained in this material is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index Asia Pte Ltd.

 

kelvin_wong
Kelvin Wong, CFTe

Chief Technical Strategist (Asia), City Index

Kelvin is professional technical analyst with extensive experience in stock indices, equities and foreign exchange. Kelvin employs a combination of fundamental and technical analysis and specialises in utilising Elliot Wave and Fibonacci analysis to pin point potential reversal levels in the financial market. Prior to joining City Index, Kelvin has traded actively and provided investment advisory for institutional traders/investors such as Deutsche Bank, Credit Suisse, ANZ and Goldman Sachs. He has also conducted technical analysis related trading workshops and seminars for thousands of private traders in Singapore and Malaysia.