Medium-term technical outlook (1-3 weeks) on Geely Automobile (HKG 0175)
Geely Auto was one of the worst performing stocks listed on the Hong Kong stock last year where it declined by a horrendous 49% versus a decline of 14% seen in both the benchmark indices; Hang Seng and Heng Seng China Enterprises (H shares). The main business flow of Geely Auto is derived from China’s automobile market where domestic demand has been weakening since the second half of 2018 due to a tighter credit condition and a sharp drop in consumer sentiment trigger by slower global growth and uncertainties that arise from the on-going trade tensions between U.S. and China.
The share price of Geely Auto has started the new year in 2019 in a sombre mood where its share price continued to tumble to print a low of 10.08 on 08 Jan 2019 which has recorded an accumulated loss of 66% from its current all-time level of 29.80 on 22 Nov 2017. To address the current lacklustre consumer demand seen in China’s domestic market, the state planner; National Development and Reform Commission (NDRC) made an announcement on Tues, 08 Jan on plans to introduce fresh stimulus measures to increase domestic consumer spending on automobiles and appliances. Geely Auto has reacted positively where its share price rallied by 15 % from 08 Jan low to print a high of 11.60 in today, 10 Jan session.
Key technical elements
- Despite the recent rallies seen in the past two days, the primary downtrend in place since its 22 Nov 2017 high of 29.80 remains intact where it has continued to evolve within a descending channel from 12 Jun 2018 high (see daily chart).
- Also, the rebound from its 08 Jan 2019 low of 10.08 has appeared to be more of a corrective structure rather than the start of a bullish impulsive wave structure to reverse the on-going primary down trend. In the past two trading sessions, the price action has formed bearish candlestick patterns to fill up the immediate gap resistance of 11.52 where it formed a daily “Doji” on 09 Jan followed by a “Shooting Star” at the end of today, 10 Jan session. These observations suggest that the recent positive sentiment has started to wane.
- Momentum readings are also indicating further potential downside. The long-term weekly RSI oscillator still has further room to manoeuvre to the downside before it reaches an extreme oversold level of 21. The daily RSI has reached oversold condition, but it has not flash out a bullish divergence signal.
- The key medium-term resistance stands at 13.82 which is defined by the upper boundary of the descending channel from 12 June 2018 high, the former medium-term swing low area of 13 Nov 2018 low and close to the 61.8% Fibonacci retracement of the last impulsive down move from 03 Dec 2018 high to 08 Jan 2019 low (see daily chart).
- The next significant medium-term support rests at the 8.50/7.10 zone which is defined by the long-term secular ascending trendline in place since Oct 2008 swing low, the lower boundary of the descending channel from 12 Jun 2018 high and a Fibonacci expansion cluster.
Key Levels (1 to 3 weeks)
Immediate resistance: 11.52
Pivot (key resistance): 13.82
Supports: 10.08, 8.50 & 7.10
Next resistance: 20.70
The primary downtrend remains intact for Geely Auto where the key medium-term pivotal resistance stands at 13.82 for a potential impulsive downleg to retest the recent 10.08 low of 08 Jan before targeting the next supports at 8.50 and 7.10.
However, a clearance above 13.82 invalidates the bearish scenario to open up scope for an extension of the corrective rebound towards the former major range support from 29 Sep 2017/27 Apr 2018 now acting as a resistance at 20.70.
Charts are from eSignal