Hang Seng Index Technical: Potential breakout from channel resistance

• Hang Seng Index has traded back above its key 200-day moving average.
• Positive short-term momentum has resurfaced in the past 5 days.
• Price actions are now hovering right below a medium-term channel resistance at 19,780.

Fig 1: Hong Kong 33 4-hour trend as of 9 Jun 2023 (Source: TradingView, click to enlarge chart)

This a following-up post on our earlier analysis, “China and HK equities may see the return of positive animal spirits” published on 7 June (click here for more details).

In the past week, the Hong Kong 33 Index (a proxy for the Hang Seng Index futures) has rallied by 7.95% from its 31 May 2023 low of 18,028 with several positive technical elements.

Traded back above the key 200-day moving average with improving upside momentum

The Index has managed to reintegrate back above the key 200-day moving average since Tuesday, 6 June with the 4-hour RSI oscillator back above its 50% level after a prior bullish divergence signal being flashed on 31 May 2023 (coincided with the 31 May 2021 price action low of 18,028) and has yet to reach an overbought region of above 70%.

These observations suggest that the downside momentum of the previous minor steep decline from the 23 May 2023 high of 19,848 to 31 May 2023 low has abated.

Watch the medium-term descending channel resistance

Price actions of the Index have been evolving within a medium-term descending channel in place since the 27 January 2023 high of 22,688 with the upper boundary of the channel now acting as a resistance at 19,780. A clearance above it may indicate the emergence of a potential fresh short to medium-term uptrend phase with the next intermediate resistances coming in at 20,300 and 20,900 (61.8% Fibonacci retracement of the down move from 27 January 2023 high to 31 May 2023 low & the range resistance from 20 February/7 March/17 Apr 2023).

On the other hand, a break below 18,830 key short-term pivotal support negates the bullish tone to expose the next key medium-term support zone at 18,130/17,630.

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