Asia Day Ahead: Hang Seng Index eyeing for a retest of trendline resistance

Asia Open

The Asian session was set for a slightly positive open, with Nikkei +0.55%, ASX +1.34% and KOSPI +0.66% at the time of writing. The relief follows after a heavy sell-off in global equities over the past week, with expectations that geopolitical tensions between Israel and Iran may fizzle off given Iran’s tamed response.

The VIX surged above the key 20 level at one point, but was quick to pull back to the 18.71 handle to end last week as a sign of easing jitters. On the commodities front, Brent Crude prices (-0.5%) edge lower in today’s session, as markets continue to unwind the geopolitical risk premium tied to potential disruptions, while gold prices have also given back almost all of its last Friday’s gains.

Market participants, however, took the opportunity to sell the bounce in US big tech on heavy volume last Friday, placing the Nasdaq on its worst weekly performance since November 2022. While this suggests that we may not have seen the low in the index yet, this week will present a slew of big tech earnings, which has the tendency to crush earnings expectations. Nevertheless, this may offer market participants the opportunity to watch for any signs of weakness in rallies to sell the rip.

The mixed performance in the US may seek to limit gains in the Asian session today, while markets tread in some wait-and-see amid a quiet economic front to start the week. The resilience in US Treasury yields may account for the underperformance in growth-sensitive tech names lately, with further rise in yields likely to drive the divergence between the DJIA and Nasdaq 100 into this week.

Economic data to digest: China’s loan prime rate

In a widely expected move, the People’s Bank of China (PBoC) kept its benchmark loan prime rate unchanged this morning, with authorities giving themselves more time to assess the impact of previous policy support while seeking to balance the weakness in its currency. The first-quarter gross domestic product (GDP) read has been promising, but pockets of weakness remain in its domestic demand alongside property sector challenges. Any signs of fizzling out in recovery momentum ahead could still raise calls for further cuts later this year.

What to watch: Hang Seng Index (HSI)

The HSI has managed to stabilise at the lower base of its daily Ichimoku Cloud support lately and seems to be eyeing for a retest of a key downward trendline resistance ahead. Its daily relative strength index (RSI) is also back to retest the key 50 level, with one to watch for any successful break of the trendline resistance to show buyers in greater control. On the downside, the 16,000 level seems to serve as immediate support for the index, with the formation of a bullish pin bar at the level suggesting some near-term dip-buying.