Hang Seng Index Technical: The countertrend rebound phase may have ended

• Lacklustre movement was seen in China & Hong Kong benchmark stock indices today after the release of China Premier Li Qiang’s economic work report during the second day of the “Two Sessions”.
• Premier Li Qiang has officially announced China’s 2024 GDP growth target of around 5% (within consensus) and stuck to the same rhetoric of targeted stimulus measures to achieve the economic growth target.
• Lack of fresh positive catalysts may reverse the four weeks of the rally seen in China & Hong Kong benchmark stock indices.
• The Hang Seng Index is likely to be undergoing a “bearish flag” with a potential downside trigger level at 16,080.

This is a follow-up analysis of our prior report, “Hang Seng Index Technical: Countertrend rebound in play but not major bottoming” dated 25 January 2024. Click here for a recap.

The weakest major benchmark stock indices of late, China had Hong Kong have roared back to life and became the top-performing stock market for February with monthly gains of +9.35% on the CSI 300, and the Hang Seng Index notched up by +6.63%.

Similar monthly stellar gains can be seen in other related indices; Hang Seng TECH Index (+14.16%) and Hang Seng China Enterprises Index (+9.32%); all of them outperformed the US S&P 500 (+5.17%), and even the Nasdaq 100 (+5.29%) in local currency terms.

The recent bout of outperformance seen in the China/Hong Kong stock markets has been driven by policies that target the trading mechanism of the stock market such as banning or making it difficult for high-frequency firms and hedge funds to enact short positions on Chinese equities.

The deflationary risk spiral remains intact in China’s economy with no fresh positive catalysts from Premier Li’s economic work report

Hence, this is only a short-term fix, and less likely to reverse the long-term secular bearish trend of the CSI 300 and Hang Seng indices in place since February 2021 because top China policymakers see no urgency to address the deflationary risk spiral that is playing out in China economy as consumers and businesses’ face a negative wealth effect from the depressed property market.

In today’s China annual parliamentary session (aka Two Sessions), Premier Li Qiang officially announced China’s 2024 GDP growth target set at around 5%, a similar rate that is within consensus, and the rhetoric of targeted stimulus measures remains intact.

Hence, there are no fresh catalysts on the horizon that may propel the China and Hong Kong benchmark stock indices to kickstart a medium-term uptrend phase.

Forming a potential “bearish flag”

Fig 1: Hong Kong 33 Index medium-term trend as of 5 Mar 2024 (Source: TradingView, click to enlarge chart)

Fig 2: Hong Kong 33 Index short-term trend as of 5 Mar 2024 (Source: TradingView, click to enlarge chart)

Through the lens of technical analysis, the price actions of the Hong Kong 33 Index (a proxy on the Hang Seng Index futures) have indicated that the recent upmove from its 22 January 2024 low is likely to be a countertrend rebound sequence (aka a “bearish flag”) as the daily RSI momentum has just shaped a bearish momentum breakdown below a key parallel ascending trendline support below the 50 level (see Fig 1).

In the short-term, watch the 16,670 key short-term pivotal resistance, and a breakdown below the “bearish flag” support at 16,080 may trigger further weakness to expose the next near-term support at 15,455 in the first step (see Fig 2).

On the other hand, a clearance above 16,670 negates the bearish tone for a squeeze up with the next near-term resistance coming in at 17,010/130 after 16,860 minor swing high area of 23/28 February 2024.

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