Hang Seng Index Technical Analysis: HK Stocks Defend Uptrend

HANG SENG INDEX, US-CHINA TRADE WAR, TECHNICAL ANALYSIS – Talking Points:

  • Hang Seng Index manages to hold 3-month uptrend through protests flare-up
  • Council elections’ outcome hints Beijing crackdown risk may be diminished
  • Buyers aiming at resistance near 28000 figure, US-China trade talks in focus

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Technical positioning proved prescient as increasingly violent between protesters and police roiled Hong Kong, warning that uptrend guiding the local Hang Seng Index (HSI) equities benchmark remained intact. As it happened, buyers managed to hold off selling pressure without surrendering key support guiding prices northward since mid-August.

Perhaps most critically, the bounds of this month’s break beyond downward-sloping resistance previously capping the upside since early April held up on retest. That might set the stage for imminent upside resumption eyeing resistance near the 28000 figure. Establishing a foothold above that on a daily closing basis may set the stage to challenge July’s swing high at 29080.

Hang Seng Index chart created with TradingView

HANG SENG INDEX OUTLOOK BUOYED BY HONG KONG COUNCIL ELECTIONS

The fundamental backdrop might have cautiously brightened too, reinforcing the case for an upside scenario. Candidates linked to the pro-democracy protest movement scored impressive gains while multiple high-profile government figures lost their posts in district council elections over the weekend. If Beijing were of a mind to crush the uprising forcefully, one might imagine this would not have transpired.

The mainland’s hands-off approach might suggest President Xi and company are eager to de-escalate and reestablish a sense of status quo, which might cheer the markets. Navigating the US-China trade war probably remains front-of-mind for PRC officials. Within its contest, unrest in Hong Kong is not only an unwelcome distraction but an inconvenient stumbling block in talks with Washington DC.

US-CHINA TRADE TALKS SEEM TREND-DEFINING FOR STOCK MARKETS

Nevertheless, the broader improvement in Asia Pacific stocks’ performance – and counterparts elsewhere too, like Europe – appears to have reflected hopes for at least a “phase 1” deal dialing down US-China tensions. Absence of concrete progress on this front might well limit upside follow-through, allowing the Hang Seng to play a bit of catch-up to regional peers but offering little scope for lasting trend development.

HANG SENG INDEX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivakon Twitter

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