Hang Seng Index Technical: Entrenched in a downward spiral – heochaua

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<li><strong>China’s negative import growth in November suggests a sticky weak domestic demand environment.</strong></li>
<li><strong>China and Hong Kong stock markets have failed to reignite bullish animal spirits despite the weakening trend seen in the US 10-year Treasury yield in the past month.</strong></li>
<li><strong>Hang Seng Index now faces a potential major bearish breakdown that may retest the 12,200 October 2008 GFC swing low area in Q1 2024.</strong></li>
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<p>This is a follow-up analysis of our prior report, <em>“Deflationary spiral is still a recurring risk in China, but the yuan remains resilient” </em>published on 30 November 2023. Click <a href="https://marketpulse.com/forex/deflationary-spiral-is-still-a-recurring-risk-in-china-but-the-yuan-remains-resilient/kwong">here</a> for a recap.</p>
<p>China and Hong Kong stock markets have continued to wobble despite the recent one-month of risk-on-herding behaviour seen in other global stock markets triggered by the medium-term downtrend phases of the US 10-year Treasury yield and US dollar weakness (see Fig 1).</p>
<h2><strong>Underperformance of China & Hong Kong benchmark stock indices</strong></h2>
<p><a href="https://www.marketpulse.com/wp-content/uploads/2023/12/DXY_2023-12-07_12-21-46.png"><img loading="lazy" class="alignnone wp-image-808965 size-large" src="https://www.marketpulse.com/wp-content/uploads/2023/12/DXY_2023-12-07_12-21-46-1024×591.png" alt="" width="700" height="404" srcset="https://www.marketpulse.com/wp-content/uploads/2023/12/DXY_2023-12-07_12-21-46-1024×591.png 1024w, https://www.marketpulse.com/wp-content/uploads/2023/12/DXY_2023-12-07_12-21-46-300×173.png 300w, https://www.marketpulse.com/wp-content/uploads/2023/12/DXY_2023-12-07_12-21-46-768×443.png 768w, https://www.marketpulse.com/wp-content/uploads/2023/12/DXY_2023-12-07_12-21-46.png 1509w" sizes="(max-width: 700px) 100vw, 700px" /></a></p>
<p>Fig 1: Rolling 1-month performances of global benchmark stock indices with US Dollar Index & US 10-year Treasury yield as of 7 Dec 2023 (Source: TradingView, click to enlarge chart)</p>
<p>The month of November 2023 has witnessed stellar monthly performances in the S&P 500 (+8.9%), Germany DAX (+9.5%), Nikkei 225 (+8.5%), and MSCI Emerging Markets ex China (+9.7%). In contrast, bears dominated China A50 (2%), CSI 300 (-2.1%), and Hang Seng Index (-0.4%) over the same period.</p>
<p>The persistent weakness seen in the China and Hong Kong stock markets since China’s COVID re-opening optimism fizzled out in Q1 2023 has been primarily driven by structural vulnerabilities due to rising debt risks in major property developers that may trigger a deflationary spiral in China.</p>
<p>Domestic demand has also remained lacklustre in China despite ongoing revival efforts by policymakers via targeted monetary and fiscal stimulus measures. The latest trade data for November has indicated a surprise contraction in China’s imports which slipped to -0.6% y/y, below consensus estimates of a further improvement in growth to 3.3% y/y from 3% recorded in October.</p>
<p>Hence, it seems that the prior one-month recovery of import growth recorded in October is likely a “blip” and November’s negative y/y growth rate suggests the rolling twelve months of negative growth trend in imports remains intact.</p>
<h2><strong>Hang Seng Index faces the risk of a major bearish breakdown</strong></h2>
<p><a href="https://www.marketpulse.com/wp-content/uploads/2023/12/HSI_2023-12-07_13-13-21.png"><img loading="lazy" class="alignnone wp-image-808966 size-large" src="https://www.marketpulse.com/wp-content/uploads/2023/12/HSI_2023-12-07_13-13-21-1024×591.png" alt="" width="700" height="404" srcset="https://www.marketpulse.com/wp-content/uploads/2023/12/HSI_2023-12-07_13-13-21-1024×591.png 1024w, https://www.marketpulse.com/wp-content/uploads/2023/12/HSI_2023-12-07_13-13-21-300×173.png 300w, https://www.marketpulse.com/wp-content/uploads/2023/12/HSI_2023-12-07_13-13-21-768×443.png 768w, https://www.marketpulse.com/wp-content/uploads/2023/12/HSI_2023-12-07_13-13-21.png 1509w" sizes="(max-width: 700px) 100vw, 700px" /></a></p>
<p>Fig 2: Hang Seng Index long-term secular trend as of 7 Dec 2023 (Source: TradingView, click to enlarge chart)</p>
<p>Through the lens of technical analysis, bearish momentum readings have been flashed out in the long-term monthly chart of the Hang Seng Index.</p>
<p>It is now retesting a long-term secular ascending support in place since the major August 2028 low (Asian Financial Crisis), the last retest and rebound occurred on October 2022 in line with China’s COVID re-opening theme play that coincided with an extremely oversold reading of 21.90 seen in monthly RSI momentum indicator.</p>
<p>In contrast, the current retest on the long-term secular ascending trendline now acting as support at around 16,100 has not been accompanied by bullish reading seen in the monthly RSI indicator; not in the oversold region at this juncture, and bearish momentum remains intact as it traced out a lower high right below a parallel resistance at the 50 level.</p>
<p>Therefore, the Hang Seng Index may see further potential weakness in Q1 2024 with the next major support coming in at 12,200 (October 2008 GFC swing low area & the lower limit of a major sideways range configuration in place since October 2007 major swing high).</p>
<h2><strong>Watch the 16,680 key short-term resistance</strong></h2>
<p><a href="https://www.marketpulse.com/wp-content/uploads/2023/12/HK33HKD_2023-12-07_13-24-14.png"><img loading="lazy" class="alignnone wp-image-808967 size-large" src="https://www.marketpulse.com/wp-content/uploads/2023/12/HK33HKD_2023-12-07_13-24-14-1024×591.png" alt="" width="700" height="404" srcset="https://www.marketpulse.com/wp-content/uploads/2023/12/HK33HKD_2023-12-07_13-24-14-1024×591.png 1024w, https://www.marketpulse.com/wp-content/uploads/2023/12/HK33HKD_2023-12-07_13-24-14-300×173.png 300w, https://www.marketpulse.com/wp-content/uploads/2023/12/HK33HKD_2023-12-07_13-24-14-768×443.png 768w, https://www.marketpulse.com/wp-content/uploads/2023/12/HK33HKD_2023-12-07_13-24-14.png 1509w" sizes="(max-width: 700px) 100vw, 700px" /></a></p>
<p>Fig 3: Hong Kong 33 minor short-term trend as of 7 Dec 2023 (Source: TradingView, click to enlarge chart)</p>
<p>Based on the shorter-term hourly chart, the price actions of the <a href="https://www.oanda.com/sg-en/trading/indices/">Hong Kong 33 Index</a> (a proxy of the Hang Seng Index futures) are still evolving within a minor downtrend phase in place since the 16 November 2023 high of 18,400.</p>
<p>Key short-term pivotal resistance will be at 16,680 (also the upper boundary of the minor descending channel). A breakdown below 16,100 exposes the next near-term support at 15,800 (lower boundary of the minor descending channel & Fibonacci extension cluster) in the first step.</p>
<p>On the flip side, a clearance above 16,680 negates the bearish tone for a potential minor counter-trend rebound towards 17,100 intermediate resistance (also close to the downward-sloping 20-day moving average).</p>