Hang Seng Index is still continuing to face bearish signals

THE Hang Seng Index (HSI), extended its decline last Monday (Sep 25), following an announcement made by embattled developer China Evergrande Group that it was unable to issue new debt due to an ongoing investigation into its primary subsidiary, Hengda Real Estate Group, creating a setback to its restructuring plans.

The index posted its biggest daily loss in three weeks, amid persistent concerns over China’s property market.

Looking at the technical charts, multiple bearish signals remain present for the HSI.

The prices have continued trading to the downside lately, following the breakdown of a bearish flag in early September, and are facing resistance from a downtrend concurrently.

The prices also lack momentum from the Relative Strength Index, or RSI technical indicator, which has failed to sustain above the 60 level since January, as the 50-60 zone acts as a resistance in a downtrend.

Analysing the recent price action on the chart, the prices have rebounded from a retest of the index’s year low level near 17,600 in late September.

However, its weakness was evident when sellers swiftly stepped in at the 18,000 level, which was also the recent range support breakdown level turned resistance. The gains from the initial rebound were unwound in just two days.

The expanding Bollinger Bands also suggest further downside ahead, with increased volatility to be expected.

Should HSI fail to defend the year-low level of 17,600, it may potentially pave the way to retest the 16,800 level next, which is confluent with the downtrend channel support as well as the swing low formed in November last year, before buyers resurface with greater conviction to buy the dip.

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The writer is a research analyst, at Phillip Securities