Hang Seng Index Price Setup: Are We There Yet?

HANG SENG INDEX SHORT-TERM TECHNICAL OUTLOOK – NEUTRAL

The downward correction that started in the Hang Seng Index (HSI) doesn’t appear to be over just yet. However, within the broader context, the weakness since the end of January appears to be consolidation within an uptrend.

The HSI index appears to have found a temporary floor around the 89-day moving average, near the 200-day moving average, not too far from the lower edge of the Ichimoku cloud on the daily charts. However, the index needs to crack an immediate ceiling at the mid-February high of 21300 for the imminent downside risks to fade. Speaking of the broader trend, the color-coded candlestick charts, based on trending/momentum indicators, suggest the index remains in a consolidation phase (see the daily chart).

Hang Seng Index Daily Chart

Hong Kong/Chinese equities have rebounded since the start of the month after data showed activity in China’s manufacturing sector expanded at the fastest pace in more than a decade, while the services sector expanded at the fastest pace in six months in February as the dismantling of strict COVID-19 restrictions revived consumer demand.

Meanwhile, China on Sunday set a growth target of around 5%, below last year’s target of around 5.5% at the annual session of its National People’s Congress. The target was at the lower end of the range expected by analysts, disappointing some after the economy gave one of the weakest performances in decades last year. The reaction in equity markets was muted on the hopes that the economic reopening is beginning to show in activity/real data that could lead to a re-rating higher of China’s economic growth expectations.

Hang Seng Index 240-minute Chart

However, the initial optimism is yet to manifest on technical charts. As the 240-minute color-coded candlestick chart shows that even after the rebound from last week, the index is not yet out of the bearish phase (see the 240-minute chart). Still, the index would need to break below the late-December low of 18885 for the four-month-long upward pressure to reverse.