Hang Seng Index Technical Outlook: A Pause, not a Reversal


The recent retreat in Hong Kong shares appears to be a pause and not a reversal of the uptrend. Indeed, breadth market indications and technical charts continue to paint a bullish story over the coming weeks.

Price Facts, Sentiment, Narrative


As of Thursday, 96% of the members in the Hang Seng Index (HSI) were above their respective 100-day moving averages (DMAs), not too far from 100% a week ago. Data from 2001 onwards suggests that when 100% of the members are above their respective 100-DMAs, the index has been up 60% of the time over the subsequent 120 days (see distribution plot of returns).

Distribution Plot of Returns Over 120 Days

Source data: Bloomberg; Chart created by Manish Jaradi using Python.

On technical charts, HSI has pulled back from stiff resistance on a horizontal line from early 2022 (at about), coinciding with the 89-week moving average. The drop below the lower edge of a rising channel from October confirms that the upward pressure has faded somewhat in the short term (somewhat because of the steepness of the channel. That is, even sideways price action can lead to a break below the channel, but it may not be necessarily bearish).

Hang Seng Index Daily Chart


However, the broader trend continues to be bullish, (see previous update for more details) as reflected by the Moving Average Convergence Divergence indicator in the positive territory and the color-coded candles. Having said that, consolidation doesn’t necessarily mean that the index can’t fall further – it could, but generally not deep enough to alter the broader trajectory.

Hang Seng Index Daily Chart


In this regard, there is quite a strong converged cushion at the early-December high of 19926, coinciding with the 89-day moving average (DMA) and the 200-DMA. Stronger support is on the lower edge of the Ichimoku cloud cover (now at about 18000).

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