Featured Trade: Hang Seng squeezed up to key medium-term range resistance

Hang Seng at risk of a mean reversion decline as U.S/China trade talks extended to a 3rd day.

Short-term technical outlook on Hong Kong 50 (Wed, 09 Jan)



The Hong Kong 50 Index (proxy for the Hang Seng Index futures) had rallied by 3.2% to print a current intraday of 26613 seen in today, 09 Jan Asian session since the start of the on-going U.S. and China trade talk on Mon, 07 Jan 2019.

Its recent push up in conjunction with the major benchmark U.S. stock indices; the S&P 500 and Nasdaq 100 has been led by “an air of optimism” around the trade negotiations between U.S. and China. The trade talk has extended to a 3rd day and expected to conclude today, 09 Jan. Media outlets had quoted several U.S. officials that the on-going discussions went well and even U.S. President Trump tweeted that “Talks with China are going very well!”

There are no official statements out yet on the details of the talks from both sides. Interestingly, trade hawks in the U.S. White House administration are not backing down from the current positive vibes where Bloomberg has reported that President Trump is expected to lobby Congress in his State of the Union address later on 29 Jan 2019 to pass a new legislation that will give Trump broad authority to increase U.S. tariffs if he considers other countries’ tariff and non-tariff measures to be too restrictive. The bill is crafted by White House trade adviser Peter Navarro’s office (a vocal trade hawk), together with the Trade Representative’s office and the Commerce Department.  

Key technical elements

  • The on-going rebound seen in the Hong Kong 50 Index is now approaching the key medium-term resistance level of 26740 which is defined by the upper boundary of a medium-term “triangle range” configuration in place since 26 Sep 2018 high (see daily chart). Click here for a recap on our latest weekly technical outlook.
  • The on-going rebound from 03 Jan 2019 low of 24886 is similar in terms of fractals geometry with the previous rebound seen from 26 Oct 2018 low of 24484 to 03 Dec 2018 high of 27294 before it declined by 8.6% to print the 03 Jan 2019 low of 24886. The 26740 key medium-term resistance level confluences with a Fibonacci retracement/expansion cluster (76.4% retracement of the recent decline from 03 Dec 2018 high to 03 Jan 2019 low & 0.764 expansion of the recent rebound from 03 Jan 2019 low to 07 Jan 2019 minor swing high projected from 09 Jan 2019 minor swing low (see 1 hour chart).
  • Volatility has started to increase significantly, and it is likely to be coming close to a potential tipping point for a downward mean reversion in price action. Current price action of the Index has traded above the upper Bollinger Band by 3 consecutive hourly candlesticks and a similar observation was seen prior to the 8.6% decline from the 03 Dec 2018 high of 27294 (see 1 hour chart).
  • The 1-hour Stochastic oscillator has reached an extreme overbought level.
  • The significant near-term supports rest at 26080 (the former minor swing high areas of 20 Dec 2018 & 07 Jan 2019) and 25745 (lower limit of minor congestion zone formed on 07/08 Jan 2019).

Key Levels (1 to 3 days)

Pivot (key resistance): 26740/800 (medium-term pivot)

Supports: 26080 & 25745

Next resistance: 27250

Conclusion

The current rebound seen in the Hong Kong 50 Index has appeared to be overextended where the risk of a mean reversion decline increases at this juncture. If the 26740/800 key medium-term pivotal resistance is not surpassed, the Index may see a slide to target the near-term supports of 26080 and 25745 in the first step.

However, a clearance above negates the bearish tone for an extension of the corrective rebound to retest the 03 Dec 2018 swing high area of 27290.

Charts are from City Index Advantage TraderPro



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