Companies & Markets

Hang Seng Index expected to continue trading down

Zane Aw Yu Xuan

Published Mon, Jul 17, 2023 · 05:00 AM

THE Hang Seng Index (HSI) has been trading in a downtrend and is down over 15 per cent since its January peak this year, as a swathe of weak economic data from China raised more questions over an economic recovery in the country. The index extended its recent losses following weak economic data released early this month as the Caixin Services Purchasing Managers’ Index came in at 53.9 falling short of the 56.2 consensus, well below May’s reading of 57.1. The June print was also the index’s second-worst reading this year. Data released last week also showed China’s deflation pressure building with the Producer Price Index sinking 5.4 per cent year on year, and falling for a ninth consecutive month and its fastest pace in over seven years.

Looking at the technical charts, multiple bearish signals remain present for the HSI. The index is currently trading in a downtrend channel with the 50-day moving average, a popular mid-term trend indicator among traders, acting as a dynamic resistance on the daily timeframe. It also continued trading to the downside lately following a bearish flag breakdown. In addition, the Relative Strength Index technical indicator has failed to sustain above the 60 level since January as the 50-60 zone acts as a resistance in a downtrend.

On the weekly timeframe, the 20-day moving average has also continued to act as a resistance for HSI since breaking down in March this year. It could head towards the 17,600 point level which is confluent with the downtrend channel support as well as the 61.8 per cent Fibonacci retracement level, taking the October 2022 swing lows at 14,597 points and January 2023 swing highs at 22,700 points.

In addition, the HSI Volatility Index, which measures the 30-calendar-day expected volatility of the index, also broke out of a mid-term downtrend resistance recently which could point towards further volatility in the near-term.

The writer is research analyst at Phillip Securities