Hang Seng hovering around key support levels

Hong Kong shares ended last Friday on a low note, shedding 1.9% leaving the Hang Seng Index largely flat for the week.

Hong Kong business district
Source: Bloomberg

The overhanging atmosphere of worry has been driven largely by concerns over Europe’s economic growth, the impending end to QE3, and the outlook for emerging markets being trimmed.

On these considerations, the US Federal Reserve has sounded an alert that it may delay interest rate hikes if foreign growth is weaker than expected.

Asian investors starting the week are likely to take a wait-and-see approach for the first few macroeconomic indicators to set the tone for the markets.

One of the key data points first of the block will be China’s trade balance figures. The consensus forecast for September exports is for an increase from 9.4% to 12%, and for imports to shrink at a slower pace from -2.4% to -2%. Any disappointing figures will likely fuel the pessimistic mood in the markets and weigh down sentiment further.

Looking at things through a more positive perspective, China agrees with the International Monetary Fund’s view that a slowdown in its economy is a healthy correction for sustainable long-term growth. That may persuade some long-term investors to see this as an opportunity to keep a watch out for oversold stocks.

Another lift to the markets could come with the improving situation from the Occupy Central movement, where pro-democracy protests are showing signs of petering out. Police have been clearing barricades of the streets without much incident.

Ahead of the Hong Kong open

With a lack of significant market catalysts, we are calling for the Hang Seng Index, or Hong Kong HS50, to open 1.29% lower at 22,766 points. This will pull it under the key support level of 23,000 points and suggests a further downside momentum ahead as it looks for a new support.

Click to enlarge

On a short-term basis, the Hang Seng is hovering around its Fibonacci 61.8% retracement line at 22,744 points, as seen on a daily chart. A break further below will see it test a previous low of 22,220 points – a five-month low.

Click to enlarge

On a weekly chart and more long-term basis, the Hang Seng Index has been respecting an uptrend line. This suggests an upward bias, but we will be watching closely to see if it breaks below the support of this trend line. Any break below this will likely see the price testing the next support level around 22,000 points.

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