Featured Trade (HK Stock/H share): Bank of China vulnerable for a major bearish breakdown

Bank Of China is eyeing a potential bearish breakdown from its major support

Medium-term technical outlook (1-3 weeks) on Bank of China (HKG 3988)



Key technical elements

  • The share price of Bank of China (“H” share listed on the Hong Kong Stock Exchange) has plummeted by 35% YTD from its 29 Jan 2018 high of 4.96 which make it one of the worst performing banking stocks in 2018 where the benchmark KBW Nasdaq Global Bank Index recorded a YTD decline of -16.45%.
  • Interestingly, the on-going medium-term downtrend has staged the bearish reversal right at the median line of its primary/major ascending range in place in since Oct 2008 low of 1.70 which acted as a resistance at 4.96 (see weekly chart).
  • Current price action is challenging the major ascending range support at 3.24 without any clear signs of bearish exhaustion. The weekly RSI oscillator still has room to manoeuvre to the downside before it reaches an extreme oversold level of 14. In addition, the RSI oscillator remains bearish below its significant corresponding resistance at the 57 level without any bullish divergence signal.
  • The key medium-term resistance stands at 3.52 which is defined by the upper boundary of the medium-term descending channel in place since 29 Jan 2018 high and the former swing low areas of 20 Jul/16 Aug 2018.
  • The next medium-term support rests at 2.95 follow by 2.83/75 (Fibonacci projection cluster, lower boundary of the aforementioned medium-term descending channel & the swing low areas of 04 Jun/03 Sep 2012),

Key Levels (1 to 3 weeks)

Intermediate resistance: 3.34 (gapped down from on 11 Oct 2018)

Pivot (key resistance): 3.52

Supports: 3.24 (downside trigger), 2.95 & 2.83/75

Next resistance: 4.07

Conclusion

The share price of Bank of China looks vulnerable for a major bearish breakdown as long as the 3.52 key medium-term pivotal is not surpassed and a break/daily close below 3.24 reinforces the continuation of the medium-term impulsive down move to target the next supports at 2.95 and 2.83/75.

On the other hand, a clearance above 3.52 put the bears on hold for a corrective rebound to retest the 4.07 resistance (former triangle range configuration support from 09 Feb 2018 & 50% Fibonacci retracement of the on-going decline from 28 Jan 2018 to 11 Oct 2018 low of 3.22).

Charts are from eSignal



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