The first half of 2019 saw an impressive gain of the Hang Seng index but momentum begin to shrink in March and April of 2019. The failure to close above 30000 spells a continued downside for the index.
The Hong Kong market was marred with uncertainty with the ongoing trade war between the United States and China from 2018 and the violent protest which continued for 6 months. Despite a strong close in the market with the first phase of the trade deal concluding, the index bullish momentum is weaker, with only a modest gain of 12%, ending below 29,000 in the new year of 2020.
2020 was ushered in with even more uncertainty as violent protest carried on and the outbreak of the Coronavirus in Wuhan has increased the risk of the market meltdown.
The monthly chart indicates that the index is forming a potential 5-wave ascending wedge formation with the ongoing 3rd leg of the C wave. Based on the technicals, the index will test the immediate support of 24899. Should the support breakdown, the next move will test the demand area highlighted in the chart before an upside rally to form the D leg of the ascending wedge. The likelihood of a breakdown below 24899 is high with a smaller descending triangle formation and the larger RSI bearish divergence supporting the continued bearish downside.
The weekly chart reveals a clearer picture of a bearish move. The false breakout of the descending triangle is marked by a strong bearish engulfing candle at 78.6% of the Fibonacci retracement level of 24540 – 30280.12. The 78.6% Fibonacci level confluent with the double top formation and the previous high in 2018 fails to close strongly above the 30000 indicates further downside.
The daily chart indicates further downside risk as the price faced strong bearish rejection near 127.2% of the Fibonacci extension at 29021.05 level. The persistent strong bearish downside continued till it briefly broke the lower bound of the ascending channel. Support near 26000 psychological support level further echoes the index to test these levels.
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