The Hang Seng index had a positive start of the week as investors reflected on the outcome of the China party congress during the weekend. The blue-chip index popped to a high of H$20,800, which was a few points above last week’s low of H$19,773. In this report, I will use technical analysis to predict whether the recent retreat is a reversal or just a pause.
Hang Seng index daily chart
On the daily chart, we see that the Hang Seng index pulled back when it tested the key resistance level at $22,727. This was an important level since it was the highest point on July 7 last year. A closer look shows that the index has formed an inverted head and shoulders pattern.
In price action analysis, this pattern is usually a bullish sign. The right shoulder is at the key support level at $19,165, which was the lowest point in May last year. Meanwhile, the index is still being supported by the 200-day exponential moving average while the Relative Strength Index (RSI) has moved close to the neutral point at 50.
Therefore, based on this technical chart, we can assume that the recent pullback is just temporary and that the bullish trend will resume in the coming days. This view will be confirmed if the Hang Seng index jumps to the key resistance level at H$21,500. A drop below the support point at $19,165 will signal that there are still more sellers in the market.
HSI index weekly analysis
The weekly chart shows that the Hang Seng index recent pullback happened after it rose above the 38.2% Fibonacci Retracement level. This is notable since financial assets tend to retreat when they test their key retracement levels. It remains below the 200-week moving average while the RSI has formed a bearish divergence pattern.
The Hang Seng index wants to retest the support at $19,165, which we pointed in the daily chart. In this chart, the price is at the 23.6% retracement level. Therefore, I suspect that the Hang Seng index will retreat slightly and then resume the bullish trend in the coming weeks. If this happens, the next level to watch will be at the 200-day exponential moving average at H$24,000.
Like in the daily chart, a volume-supported break below the support at $19,165 will signal that there are more sellers left in the market.
HSI chart by TradingView
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