Sure feels that way, because today was quite sour, especially if you were involved in the HSI at all.
In a way, it mostly looked like a tale of two trading days, each with their very individually distinct features. First, we got the massive move down towards the 20 960 level which held mysteriously well save 20-30 points throughout the morning, which was a move led by the high-beta components of the index. Secondly, the afternoon session continued the plunge, especially when in the last 30 minutes of trading (minus 100 points) there was an unbroken sequence of five-minute candles down, with large moves interspersed by five-minute holds repeating three times, with not a buyer in sight. This was however the continuation which seemed pretty natural given the previous plunge starting at around 2 pm local time. What was most peculiar during this period of time was that the high-beta names held up surprisingly well, and the big plunge continuation was sparked by the big blue chips and in most cases low-beta names. Suffice to say, finance and property was not where you wanted to be, while utilities held its ground as a non-cyclical alternative.
If the market would have continued falling in the same fashion in the afternoon as it did in the morning, it would have made more sense to draw the analysis that the global risk-off rebalancing which has been the vogue this week so far just continued, with high-beta names taking a larger proportion of the hit than their beta alone would predict given their particularly good run year-to-date. The recommendation in this case [hey, I mulled over this all lunch on a total of 6 hours sleep in the preceding 48 hours, I’m going to be proud of it!] would have been to simply take the trade with momentum, and then try to reverse it as the valuation spread becomes bleedingly large. Short high-beta focused differential performance plays, bearish index spreads, pretty much any option strategy that puts cash on the table, deep-OTM covered shorts, yada yada, it’s pretty standard fare. The benefit of most of this would be then that you’re able to snap up stocks at a fairly low price afterwards if the market turns, while pocketing the momentum trade for the time being.
Alas, this did not occur, and leaves us in a pretty pickle, using a little bit too much vinegar. Instead, the low-beta names caught up (or down, more correctly), and pretty much rendered bearish beta strategies moot. No quick-play this time around, and it thus requires lifting the gaze a little bit, dive down into volume and company specifics, as well as naturally the technical situation on each of the stocks.
Volume soaring sky-high today, at HK$127bn which is obvious off the US$6bn (HK$46.5bn) sale of AIA stocks by AIG. Still, we clocked around HK$80bn on the day, which is very high, and maintained a clip of HK$300mn/minute for the last 90 minutes on average – largely contributed by the ending 40 minutes – which kept volume-per-point roughly stable throughout the fall of the day. Again, this is high and of course illustrates further the widespread selling that was in force. Volumes were up across the board, but Chinese financials were obviously taking some big hits all over, predominantly ICBC (more later) as the Goldman sales rumor kicked in all over again.
It’s a mixed bag. Lets go over some observations quickly:
- Keep in mind: we’re not making a month low yet.
- Yes, the fall was big, but the rises that preceded it this year were too. (Perspective)
- That said, we opened below the 21D SMA (monthly), closed below the 252D SMA (annual) and broke the 20 960 support after repeated attacking.
- RSI, Stochastics, and ADX/DMI are all indicating a huge move down. Not looking at the chart of price, one would be forgiven for assuming that a crash occurred.
- MACD reading/EMA divergence is picking up speed on the way down from positive territory.
Taken together, all these points indicate that any consolidation around these levels (possibly down to 20 4009 would direct the analysis towards fading of the negative technical readings from exuberant levels, flush the momentum indicators and allow new re-entry points on the rebound if it occurs within, say one or two weeks. Be especially weary of the closing level of the HSI this week, as we are now back on the top of the center tiger stripe down after having had a very tentative nibble at the top stripe. Thus, this support level, 20 960, and the 252 SMA at 20 900 will all be very important things to look for, mostly throughout the week, and especially around the Friday close for further clues on the strength of any swing move in or out of resistances.
Keep in mind, on Thursday is the deadline – or, whatever that word means these days – for Greece to get bondholder participation for the swap of 75% of its privately held debt. Good luck… Devisingany momentum strategy with this in mind is dangerous, particularly to the upside. Downside plays could be using the center stripe outlined above, targeting the bottom, and upside players should obviously move in on the Monday open if we do get holding above the top line.
Although the index seems to be faring fairly well considering the circumstances, a lot of names took 3-4% hits today, and we’re back in a somewhat different play mode.
We’re back to using the upper negative trend line I’ve drawn time and time again. This time however, the last few days has provided a triangle which broke to the downside, and moved the market further downwards as we’ve gone along. the chart below shows the strength of the negative trendline in setting out the “ladder” of resistances around for HKEx. Still… the support is starting to pile up, but if that breaks, we have another bearish case on our hands again!
The bottom includes the upwards trend previous uncertainty line, which we are pushing into, and would be the last line of relevance for the upper upwards trend line plotted. Yes, that trend line intersects the HK$ 100 level pretty well as well, so has quite a lot of importance for any sustained rally in HKEx from here on out. For the immediate plays, lets have a look at a slightly shorter time frame:
Now isn’t too bad of an entry point (the half year EMA, 126 days, uptrend uncertainty range coming up against it, and the previous S/R function of the HK$135 level better seen in the upper chart) assuming of course that the next day of trading isn’t going to break all of these factors down and turn that into fuel for a further break down. Straddle hard? Upwards target at HK$142 at the moment for the 21 EMA, but if the fall continues, another brisk move towards HK$125 would not be extremely surprising.
This one’s also bumping in to some support, most prominently the rally-line from October, November and February bottoms. Now this has created an expanding triangle which is having a width near 10% of price, and straddling the HK$5.53-5.38 range perfectly. Furthermore, if you’ve ever looked at a cup-and-handle chart, what does this chart tell you?
I am expecting this level to provide some support or several reasons like the triangle bottom, previous S/R action, and the 126 EMA coming right up for support even though we said goodbye to the 252 SMA earlier this morning. Looks range bound for a while, and the two doji’s from Wednesday and Friday last week (evening star and continuation patterns respectively) are arguably negative, but they’ve had a roughly 8% effect on price so far, so the question is if there is more steam in this fall. Still, the path of least resistance in anything longer than a few days frame is continued down, and bulls do have their work cut out for them.
Just for your information, Bank of China trades roughly similar in a candlestick perspective, but is being much more technically supported by its long-term SMA’s (2, 3 and 4 quarters) and does not have such a clear-cut S/R line picture. Your call on what is most important.
First of all, the trend is way clearer, and the support of the pinbar yesterday allows the stock to look fairly appetizing even though there was a 3% fall today. ADX/DMI? Barely even noticed today happened, especially on shorter time frames! The stock also held late afternoon trading remarkably well, while for example Sands got afflicted by a curse called Gravity and took a 4% hit on the day overall. Trends look solid as well, with a 21/252 SMA cross occurring in the week right below price, and then the “shadow cross” of the 63/126 SMA going far below price, but still being bullish. Especially given the valuation picture and recent rebuffing of the stock, plus less exuberant trading than Sands/MGM, this stock looks set for further gains. Anything below HK$15 looks like a bargain, and check that 63 EMA in case a consolidation around here happens. Do I think it will fall below HK$14.2? No. If it does, I’m buying!
Charts courtesy of Interactive Brokers