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Technical Update - Hang Seng reached levels not seen in 11 years. China A50 testing key support. Will they drop lower?

Equity 2 minutes to read
KCL
Kim Cramer Larsson

Technical Analyst, Saxo Bank

Hang Seng Index is trading at the lowest level in 11 years. Dipping below 2011 lows at 16,170 the Index did manage to close just above. Trend is down but there is divergence on daily RSI indicating a correction could be seen. A correction is likely to be limited however, weekly RSI is showing no divergence indicating lower levels are in the cards. And if daily RSI closes below its rising trendline it would be a strong indication of lower price levels.

HSI d 21oct
Source: Saxo Group
HSI w 21oct
On the monthly chart a big Shoulder-Head-Shoulder like pattern has formed. Not the most textbook perfect as that would require both shoulders to be at equal height but nevertheless an S-H-S like pattern.
Rule of thumb is that the price after break of the neckline could move the same distance as distance from the Head to the Neckline illustrated by the two vertical arrows.
That would indicate a price target around 8,500. However often the price doesn’t move that far and there is strong support at around 11,344.
15K is also a likely price target. It is the 1.618 projection of the 2020-2021 correction
HSI m 21oct

The China A50 Index future has dipped below the Q1 low and support at 12,294 but managed to close above. The down trend seems a bit stretched with divergence on RSI. However, RSI has closed below its lower rising trendline indicating there could be more downside.

If A50 closes below 12,294 there is no strong support until around 11,498 i.e,, Q1 2020 low. Weekly RSI has closed below its lower rising trendline meaning despite showing divergence combined with Bollinger Bands expanding there are strong indications of lower levels and a likely move to the 11,498.

To reverse this bearish picture short-term a close above 13,502 is needed. If this occurs A50 is likely to test the falling (black) trendline. But to change the medium- to longer term bearish scenario a close above 15,015 is needed

A50 d 21oct
A50 w 21oct

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