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Hang Seng index technical outlook: how much more downside?

Hang Seng continues to drift lower; however, the broader uptrend for HK/China stocks hasn’t reversed and what is near-term outlook and what are the key levels to watch?

Source: Bloomberg

Hang Seng index technical outlook - bullish

The gradual drift lower in the Hang Seng Index (HSI) reflects some of the unwindings of extreme overbought conditions. While the index could have a bit more downside in the near term, it is too soon to conclude that the uptrend has reversed.

The HSI index rose over 55% from a low of 14597 hit in October – the lowest level since the Great Financial Crisis. The 14-day Relative Strength Index rose above 80 at the end of January – the highest in two years. Levels above 70 are considered to be overbought and the closer the RSI goes toward 100, the more difficult it gets for a market to sustain the pace and the extent of the gains.

Price facts

  • Despite the recent retreat, the Hang Seng Index (HSI) hasn't broken the higher-tops-higher-bottom pattern (sign of an uptrend) on the daily charts. Moreover, the breakin January above the 200-day moving average confirms that the short-term trend is bullish.


  • China focused equity funds have seen outflows in the past couple of weeks. However, on a four-week rolling average basis, flows continue to be positive.


  • China's ending of its zero-Covid policy and signs of easier policy stance is leading to a re-rating of economic growth prospects - latest measures to boost the property sector. This follows less regulatory pressure on China's internet and gaming sectors. Also, easing of Sino-US tensions is supportive. Notwithstanding the recent rebound, Hong Kong's stocks were trading at the cheapest level in more than ten years.

    Risk: from a longer-term perspective, structurally subdued Chinese economic growth on deteriorating demographics poses a headwind.

On technical charts, the index has pulled back from quite a strong ceiling on a horizontal line from early 2022 (at about 22525), coinciding with the 89-week moving average. In the process, the index has fallen below minor support at the late-January low of 21383. The trend on intraday charts (hourly for instance) is down, and there is no sign of reversal yet.

Hang Seng daily chart

Source: MetaStock

However, on higher timeframe charts, including the daily charts, the index is consolidating within the four-month-long uptrend, as the color-coded candles show. Market breadth is still strong even after the retreat - 88% of the Hang Seng Index members are above their respective 100-DMA, and 64% of the members are above their respective 200-DMAs.

The index is approaching a crucial converged support area: the early-December high of 19926, coinciding with the 89-DMA and the 200-DMA. Stronger support is on the lower edge of the Ichimoku cloud cover (now at about 18000), roughly around the late-December low of 18885.

The downside could be contained within the 18885-19950 area. The index would need to break below 18885 for the four-month-long upward pressure to reverse.

Hang Seng daily chart

Source: TradingView

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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