Hang Seng Index expected to continue upward trend

ON JUL 3, 2024, the Hang Seng Index (HSI) opened higher at 17,841.77 and maintained its upward momentum throughout the trading day, closing at 17,978.58. This represents an increase of 1.18 per cent. The rise was primarily driven by strong performances of the HSI components in the technology and property sectors.

In the technology sector, notable gains were seen in several key stocks. Meituan surged by 4.37 per cent, Tencent rose by 2.76 per cent, Baidu increased by 2.74 per cent, and Alibaba climbed by 2.84 per cent. These significant increases contributed to the overall positive trend of the index. Similarly, the property sector also experienced substantial gains. New World Development surged by 4.31 per cent, Longfor Group rose by 3.8 per cent, and China Resources Land increased by 3.47 per cent. The robust performance of these property stocks further bolstered the Hang Seng Index’s upward trajectory.

The recent rise in the technology and property sectors can be attributed to dovish comments made by US Federal Reserve chairman Jerome Powell on Jul 2, 2024. Speaking in Europe, Powell indicated that US disinflation was progressing as expected, raising hopes for potential rate reductions by the central bank. This optimistic outlook has positively influenced investor sentiment, leading to gains in these sectors.

The market’s reaction aligns with the “support level 1” region of 17,400 to 17,650, as evidenced by the strong rebound seen in the Jul 3 candlestick (pink arrow). This technical support further bolstered the upward momentum in the HSI, reflecting the positive impact of Powell’s remarks on investor confidence.

Bullish scenario

The HSI appears poised for an upward trend towards the “resistance level 1” region, which ranges between 18,850 and 19,200. This potential movement is underpinned by a possible crossover of the MACD line above the signal line (grey circle) and a decrease in the MACD histogram.

Should this trend persist, the HSI could possibly re-test “support level 1”; potentially forming a double bottom or a higher low before advancing towards “resistance level 1”. However, the HSI’s ability to break through this resistance will largely hinge on the signals from the upcoming Federal Open Market Committee (FOMC) meeting scheduled for Jul 30-31. Should the FOMC maintain a dovish stance, the HSI is likely to advance further towards “resistance level 2”, which ranges between 20,300 and 20,650. This level also intersects with the “ascending upper trend line”, which indicates a significant point of resistance.

Bearish scenario

Conversely, if the HSI breaks below “support level 1”, it would also breach the “ascending lower trend line”. This concern arises from the recent official Purchasing Managers Index for China’s manufacturing sector, which remained at 49.5 in June, the same contractionary figure as May. Such a shift would indicate a transition from an uptrend to a downtrend. In this scenario, the “support level 2” region, ranging from 16,100 to 16,350, would become a critical area to monitor.

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A downtrend of this magnitude would imply a decline of approximately 10 per cent. This retracement could present an even more attractive entry point, provided the HSI maintains above this critical level.

The writer is dealer at Phillip Securities