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

  • The Hang Seng Index is running into a major hurdle.
  • Upside could be limited as the broader trend remains down.
  • What are the key levels to watch?

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The upward momentum in the Hang Seng Index (HSI) appears to be fading, suggesting that the one-month rebound could have limited upside from here.

HSI, up 25% from the October low of 14597, has run into a tough barrier at about 18415: the 89-day moving average, coinciding with the March low of 18235 and the 200-period moving average on the 240-minute charts. The shorter moving average has posed quite-strong resistance since late 2021, so a retreat can’t be ruled out – scenario 1 highlighted in the previous update.

Hang Seng Index Daily Chart


Chart Created Using TradingView

Moreover, bullish momentum since October hasn’t been any different from previous corrective rebounds this year (see chart). Hence, it may be too soon to conclude that the Hong Kong benchmark index has turned a corner. Indeed, the medium-term downtrend remains intact (see chart).

The trend and momentum, as indicated by the Moving Average Convergence Divergence (MACD) indicator, remain pointed down on higher timeframes, including the monthly and quarterly charts. Any break below immediate support at Monday’s low of 16834 would confirm that short-term upward pressure had eased, exposing downside risks toward the October low of 14597.

Hang Seng Index Monthly Chart


Chart Created Using TradingView

An alternate scenario is a relatively bullish one, where HSI breaks above immediate resistance at 18415, triggering an inverse Head & Shoulders (H&S) 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. Such a break could open the door for a rise toward 21800, the implied price objective of the H&S setup.

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— Written by Manish Jaradi, Strategist for DailyFX.com

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