Hang Seng Index, Hong Kong Equities, HSI – Technical Outlook:

  • The Hang Seng Index is running into stiff resistance.
  • Chances are that the rally could stall, and the index may retreat a bit.
  • What are the possible scenarios and what are the key levels to watch?

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The Hang Seng Index (HSI) faces quite strong resistance, raising the chances that the three-week rebound could soon run its course.

HSI jumped 25% from the October low before retreating in the past couple of sessions from near a stiff hurdle: the 89-day moving average, coinciding with the March low of 18235. The moving average has posed strong resistance since late 2021, so a retreat would by no means be surprising.

Hang Seng Index 240-minutes Chart


Chart Created Using TradingView

However, short-term momentum remains bullish (notwithstanding the recent softness associated with the retreat) and that the index is still holding support on the lower edge of a rising channel from earlier last month. This means that HSI could make one more attempt to retest last week’s high of 18415, and perhaps slightly higher toward the 200-period moving average on the 240-minutes chart, just around the May low of 19180, before it drops toward the November 7 high of 16822 (scenario 1).

Hang Seng Index Daily Chart


Chart Created Using TradingView

An alternate scenario is one where HSI breaks above immediate resistance at 18415, triggering a reverse Head & Shoulders pattern (the left shoulder is the early-October low, the head is the end-October low, and the right shoulder is the November 22 low). A caveat here is that the right shoulder is not confirmed given that price action is still unfolding. Hence it is possible that the scenario may not unfold at all.

Any break above 18415 could pave the way toward 21800, the price objective of the pattern. Importantly, it would imply that medium-term downward pressure has faded. A strong hurdle is at the June high of 22450, which would be tough to crack.

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— Written by Manish Jaradi, Strategist for DailyFX.com

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