Hang Seng and China A50 Index uptrends confirm

Gains on the benchmark index have been led by the Hang Seng’s technology sector which added as more than 4% on Thursday alone.

Hang Seng (Hong Kong 50)

The new yearly highs on the Hang Seng Index confirm what the moving averages have been suggesting for the last few months, in that the short, medium and long terms trends for the Asian benchmark are up. The moving average (MAs) evidence this by trading in what is considered ‘proper order’, with the 20MA (red) above the 50MA (green) above the 200MA (blue).

While the moving averages confirm the uptrend, the stochastic oscillator does suggest that the index is overbought in the very near term.

We assess the trend to carry more relevance than the overbought signal, although use the overbought signal as a suggestion that those looking for long entry might be able to do so at more favourable levels than what is current.

Our preference is to look for a pullback from overbought territory once again to find long entry, with 24500 a longer-term upside resistance target. 21365 and 20100 provide support levels where long entry might be considered, should a price pullback manifest. Ideally, we would like to see a price pullback end with a bullish candlestick reversal pattern around either of these levels to initiate new long trades.

It should be noted that the index could also correct from overbought territory should it not pullback and instead move into a sideways consolidation. In this scenario, we would then look to identify the range of the consolidation and wait for an upside breakout for long entry.

While recognizing the possibility of a pullback or correction to follow, we are not looking to short a move lower in lieu of the underlying uptrends prevalent.

China A50

The China A50 Index while lagging its Hang Seng counterpart has also confirmed its new uptrend as it trades to its best levels in many months. The moving averages also now trade in ‘proper order’ for an uptrend, following the recent ‘golden cross’ (marked with the red arrow), which sees the 50MA now trading above the 200MA.

The index is also overbought, and our sentiment remains like that of trading the Hang Seng i.e., our preference is to look for long entry into a pullback from overbought territory. Pullback levels considered for long entry are around 13750 and 13275, while 15100 provides a longer-term upside resistance target. If the index instead looks to correct from overbought territory through a sideways consolidation, we would instead look for a breakout scenario for long entry.