Hang Seng awaits stronger catalyst

Wall Street sign
Source: Bloomberg

With one Federal Reserve official, James Bullard, now floating the idea of delaying the tapering of QE3, markets have been reacting positively to those prospects.

The air of uncertainty hanging over Hong Kong from the pro-democracy protests still lingers as the situation remains unresolved and threatens to escalate.

Other risks such as Ebola and concerns over Europe’s economic recovery are still lurking.

These risks are likely to cap any upside and see the Hang Seng continue to be rangebound. On a daily chart, the Hong Kong HS50 looks like it is consolidating between its 50% and 61.8% retracement levels (23275 and 22780 points respectively).

We might have to wait until next week for a stronger market catalyst. This could come in the form of China’s September retail sales and industrial production numbers that due to be released on Tuesday.

Ahead of the Hong Kong open

Bullard’s comments could translate into some relief for Hong Kong shares after they lost over 1% on Thursday, closing at 22,900.94 points.

This is likely to see the Hong Kong HS50 edge up toward its 50% retracement level, at 23275 points.

However, a bounce is likely to be short-lived going by other indicators. Currently 21% of the Hang Seng index constituents are above their 20 DMA, fewer than the 30% from the previous session.

9% of the shares are above their 50 DMA (vs 14%). This suggests some underlying bearishness in the near term.

We are calling for the Hang Seng Index or Hong Kong HS50 to open 0.19% higher at 22,937 points.

Hong Kong HS50
Click to enlarge

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