Two trading days and a whole lot of different results…
First we have GDP news fading style out of China, whipping Asian markets around like wet towels, but then I barely have time to see that post on S3 before it’s all nullified by rumours, later confirmed, that the ECB is going in to buy corporate bonds as the next step of quantitative easing. Yay, more artificial support to “patch us over”! Of course, as soon as the US isn’t stimulating their economy as much as they can, the Bloomberg headline screams ‘Bloody Currency Murder‘!
The Nikkei 225 futures went from 14 760 to 15 200 (2.98%!) on the news, Hang Seng jumped 300 points today for a 1.4% gain, and the S&P500 futures went from 1875 to 1940 (3.4%!) on the same run plus some positive US news. Dear markets… what the hell is wrong with you? There’s a 10% reduction in both the HSI and the Nikkei 225 volatility indices for crying out loud! Did anything necessarily improve fundamentally? Did any of these economies we’re concerned about suddenly start growing uncontrollably? I guess not…
Japan is at least starting to show some green export shoots with foreign trade jumping more than forecast and exports being leading in that move, with growth of 6.9% (exp. at 6.5%) versus import growth of 6.2%. Bad weather might have a really rough effect on the country in the current quarter, but hopefully the exports can start a positive trend of chipping away at that massive trade deficit and assist Japanese GDP that way, helping the Nikkei push above the 15 000 barrier. Ganbatte, Nikkei!
So where does the breakaway from today leave the HSI from a technical perspective?
Let’s start with the aastocks chart:
- First of all, volume is up nearly 15% on a day-to-day basis, but still doesn’t look that inspiring compared to what the last few weeks has brought. Tomorrow will be a massive test of whether the volume can be upheld, but I do fear that a lot of people are going to be cautious on positions given the Fourth Plenum.
- My anticipated ADX/DMI kiss happened and now they’re in bed! Positive of course, and again, strong to power through that rejection two days ago.
- On a candlestick level, there is a lot of good things to say. Long downwards tail with big open candle shows a lot of buying interest, and the gap up from yesterday’s low doji without getting into the open-close range at all is really interesting.
- The bottom of today’s price was at the 189/252 SMA, with the opening at the 21 SMA and all of these could now give the market some much needed support, further enforcing the candlestick signals.
On the other hand, there is a lot of testing ground between 23 500 and 23 700:
- October top at a little above 23 500!
- Which corresponds nearly identically to the bottom of a “crisis candle” of gap lower in a down trend, with the candle being open but failing to fill the gap.
- 126 SMA at 23 600 which will give some good resistance and tends to offer some very forceful rejections.
- The July tops that got broken away from were around 23 600 as well, and the market can be cautious here.
On top of this, aastocks is reporting that apparently it’s not only southbound institutions looking for respite before opening the Hong Kong-Shanghai Stock Connect, but northbound financial houses as well. It does add an air of uncertainty, but getting this to work well is more important than getting it to work quickly.
Overall, I think getting past 23 500 – 23 700 will definitely be a challenge, but if the market is up for it I don’t really see why a run to 24 250 (63 SMA) would be impossible. A lot will be riding on the volume numbers for the rest of the week, and what indications – if any – come out of the Fourth Plenum.