Hang Seng Index Technicals – Bearish Breakout Imminent

Today is a bad day for Chinese Stocks. Both Shanghai and ShenZhen Composite Index gapped lower, trading at -3.65% and -3.54% respectively. Stocks retreated for the 2nd day in a row due to China tightening mortgage rules. This was made worse by Obama signing the sequester act late last week, making investors heavily jittery about the outlook of China’s economy in 2013. Hong Kong was similarly affected due to many Chinese companies choosing to list on the Hang Seng Exchange. The Hang Seng Index similarly fell further this morning on Chinese Service PMI data which showed a slower than expected growth rate, adding weight to the woes already felt by investors.

Daily Chart

Besides the obvious bearish Kumo Twist and bearish Kumo Breakout, price is also attempting to break the 22,400 support which has been in play back in mid Dec 2012. The latest attempt to break the aforementioned level was on 27th Feb, which was followed by a quick ascension higher after the bearish Kumo breakout. The failure to break back above the 23,100 levels with the rally last week confirms the breakout from the level, and we could see price trading under the Kumo for the entirety of March if price is unable to reclaim back territory above 23,100. A break below 22,400 exposes the next level of consolidation between 21,750 to 22,100, which may provide some support against further selling. Stochastic seems to agree with that scenario with readings heading lower with not much room below, suggesting that we could find some shorter-term support even if price manage to break away from current 22,400 levels.

Hourly Chart

Hourly Chart is also showing a bearish Kumo Twist just as price broke free below the current Kumo under it. However, previous swing low will provide some interim support against any further selling. As we are approaching the end of the trading day, it is highly likely that price may find support from here out as day traders close out their positions (e.g. buy) after a good day in profit (highly unlikely that the day ends on day day low or day high). Keep a keen watch on tomorrow’s opening price though, as we could see a gap lower which will break support and highlight the bearish sentiment. Even if we manage to trade higher tomorrow, a long as Kumo manage to nudge price lower, we’ll see overall bearish bias remain at play, which will also help to extend bearish breakout on the longer-term basis.

More Links:
AUD/USD – Trying to Stay Above Key Support at 1.02
EUR / USD – Relying on the Key Level of 1.30
GBP/USD – Drifts Lower and Now Looking for Support at 1.50

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