The futures market for Hong Hong is closed at the moment, and that gives me some time to look into how the market has viewed trading beyond the first day of the Shanghai – Hong Kong Stock Connect being open in a wider perspective. This isn’t rosy reading, so bunker up with something sweet to snack on to take the edge off the data.
Before I dig into the indices themselves, I’ll provide a rundown of the day’s most important data.
- Volume was down on the Hang Seng Index and and Hang Seng China Enterprises Index alike, but the effect was stronger on the HSI which posted a HK$74 billion turnover, versus yesterday’s HK$83 billion. For the HSCEI the effect was miniscule and stayed a rounding error from HK$13.6 billion both days.
- The Shanghai – Hong Kong Stock Connect volume was relatively paltry. Northbound trading added up to RMB4.85 billion, while Southbound trading only managed a meager RMB800 million. Most of the open-market trade was also conducted during the afternoon, after the HSI started trading a little bit more two-directionally.
- It does seem like mainland investors are a supporting force, but so far it looks like the massive over-weight is with Hong Kong investors looking to trade out of Hong Kong-listed Chinese stocks (arguably heavily reliant on finance and infrastructure, which the HSI has a lot of itself) into a wider variety of Chinese shares. The diversification benefits are obvious (in hindsight) and the performance of Hong Kong equities is yet to be attractive for mainland Chinese buyers, it seems.
- The Hong Kong monetary base was down by almost HK$1.4 billion, which could have contributed to falls. Liquidity isn’t draining from the HKMA channel, but it isn’t expanding due to foreign purchases of Hong Kong dollars either, which would suggest that as soon as there is a bigger, more sustained market rally that eases into stable trading, the closing aggregate balances might start being converted to OEFBN’s. Still too early to tell, and there is still the possibility for a CAB run-up given the HK$ trading at 7.755 to the US dollar.
- NBFIs, however, have increased their position in OEFBNs, which isn’t a particularly good sign. We’re still at very low levels of NBFI-held OEFBNs at below HK$80 billion, but it is not a good sign that these are ticking up, yesterday by about HK$600 million.
Indices covered in this post are the Hang Seng Index- and HS China Enterprises Index futures-implied spot, and the China A50 spot. All charts are due CMC markets, daily candles for the last 9 months, and uses the same underlying chart studies. Again, please see the Watched Charts page for more, and specific data on spot closes as well as volumes. Any line that starts at the very leftmost of any chart is from my most recent long-term technical analysis, and any dashed line is a Fibonacci level off of the same analysis.
Hang Seng Index:
Today was pretty much Hang Seng Index technical shock therapy…
- Bearish ADX/DMI cross.
- Thankfully the trend is very poor, so reversing this could be relatively easy.
- Moving average mayhem…
- Cross of both the 21 SMA and EMA like nothing happened.
- Rejection of the 63 EMA and 126 SMA with a lot of force…
- Statics are not much better, with the upper trend from the long term chart being crossed today, as well as the long-term 61.8% Fibonacci being broken yesterday. On top of this, the short term 61.8% Fib (flip the Fib numbers here, I accidentally started at the high and went backwards, this is shown as 38.2% in the chart) being broken today.
- The next area of support is the 50% short-term Fib.
- On its own it shouldn’t be a strong support, but the short-term Fibonacci has been pretty instrumental in setting prices (it explains the mystery rejection yesterday at 24 300, for example!) and it has further support from longer term MA’s. The 189 SMA and the 252 SMA are at 23 312 and 23 224 respectively, straddling the 50% short-term Fib at 23 276.
It thus looks very likely that the HSI could test these levels before turning north. If the market keeps testing this level throughout the week, then the 21-day Bollinger band will provide support as it will start really cramping down on price as the lowest closes in the calculation are eliminated.
Testing 23 276 tomorrow might be very likely, but after Thursday I see chances as being increasingly good for increasing valuations.
Hang Seng China Enterprises Index:
We have largely the same mechanics here as with the HSI, except only worse.
- We’re already bouncing off the 252 SMA (not shown here).
- The 21 and 63 day EMA’s were not crossed, they were simply rejected…
- It is the lower parallel triangle downwards slope we’re crossing, not the upper.
- It looks like the HSCEI will need a drain-out at the 50% short-term Fib as well, which would add support from the long-term trend line (orange).
- The Bollinger band shown here is for 63 days, but the 21 day Bollinger band gives very similar signals as that for the HSI in creeping up to the 50% short-term Fib to provide extra support.
The support area around 10 360 – 10 300 is very strong all things considered, and the HSI will be likely to go up if it tests that, hopefully dragging the HSCEI along with it. The potential for this market to advance strongly though is probably pretty limited, given all the resistance it will have if market participants decide to start buying.
Shanghai A-Shares Top 50:
The market development that I expected to be such a triumphant “IPO” of the Chinese stock market has sent the Shanghai blue chips from above a long-term 50% Fib to below the long-term 38.2% Fib! Sad smiley…
- The ADX trend is still for continued upwards movement, even though the DMI components are starting to give way.
- There is a moving average “fan” of the 21 and 63 EMAs plus the 21 SMA between 7 300 and 7 450.
- This support is enforced by the early August, early September, and late October peaks which should provide support around the 7 400 – 7 450 levels.
Overall, the A-Shares Top 50 looks a lot better, since the recent move up opens up volatility, and provides an opportunity for prior market levels to act as support. Even though the sell-off looks pretty bad, it compares with the run-up and the trend hasn’t switched to bearish as of yet. This could well provide the spark that is needed to lift Hong Kong higher as well.