Weekly Indices Review - 26 October

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After spending the past few weeks looking at the US 500 and UK 100 this week we will take a look at the market in Hong Kong. As this is one of the few major world indices that is not highly correlated with the overall picture.

The Weekly chart details how the index here never moved decisively above the pre-pandemic highs and has since traded in a very strong bearish trend, accelerating lower in recent weeks.

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The daily chart shows this negative trend in more detail and shows how selling accelerated lower in H2. Concerns over President Xi’s historic third term have increased, as his hold over the communist party is strengthened further. Increasing expectations of further crackdowns by the CCP on corporate China.

There was a sharp sell-off on the day after his third term was announced. Can the markets now build a recovery?

Due to the longer-term negative trends the price action has a great deal of work to do to feel more comfortable here for the longer term. However, over the medium term there is room to move higher retracing some of the H2 losses.

The general trend from the H2 sell-off is up around 19,000 currently, and this coincides with the 50% retracement area of this move. So, the market may be able to build a move back towards this area in the coming weeks. But even on such a move in order to feel more comfortable for the medium to longer term the 61.8% area would need to be broken, around 20,000.

As a result the buying interest could be expected to build from the large losses on Monday. Setting up a possible dead cat bounce or start of longer-term recovery with a move up towards 19,000 through Q4 ahead. Although doubts remain on how sustainable such a move may be, and with the caveat that buying interest could dry up if Monday’s lows were to be breached.