Hang Seng faces weekly loss, testing support

Despite the launch of the Shanghai-Hong Kong connect on Monday, it’s shaping up to be a rather poor week for Hong Kong shares. They are poised for their fifth straight day of losses if they close lower today.

Hong Kong Stock exchange
Source: Bloomberg

The Hang Seng Index dropped 0.1% at 23,373 points yesterday, dragged down by the financial sector.

This sets up a potential loss of over 3% for the week.

Data overnight has been a mixed bag with the US economy showing some bright spots from the lower initial jobless claims and existing home sales hitting a one-year high.

This was in contrast to the further indications of a Eurozone and China slowdown.

The purchasing managers’ index for factories and services activity in the Eurozone showed a surprise drop, hitting a 16-month low at 51.4 points. China’s manufacturing activity also stalled, hitting a six-month low with a print of 50.0 points.

Trading today has so far been rather subdued and is likely to stay that way over the next few days due to the lack of macrodata releases in the region.

From a technical perspective, the Hang Seng or Hong Kong HS50 is testing the support area of 23250 points. It has broken below an uptrend line and the downside bias looks to be in place. The index is currently under its 20, 50 and 200 DMA levels.

If the Hang Seng Index breaks below the support area of 23250 points significantly, we could see it test the next potential floor at 23000 points.

Alternatively, we could see investors looking for some bargains and buying on dips that could push up the Hang Seng in the interim. In order for any upward momentum to be sustained, one indication will be for the 50 DMA to cross back above the 200 DMA.

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