All markets are exciting as they can get, with major moves across indices, commodities, currencies, you name it! The sentiment of the day is “risk on, long US$” and nowhere was that more clear than in the Chinese markets today (Japanese dittos are posting an honourable effort though!) as there were absolutely ridiculous gains to be had in China. I mean, just look at what the Shanghai A-Shares Top 50 did:
I’ll get into the technical analysis a bit later, but at the moment, I’ll summarize what the static data generated is:
- Hang Seng Index:
- Spot high-low-close-return: 23 784 / 23 294 / 23 654 / +1.23%
- Futures-implied spot HLC: 23 798 / 23 256 / 23 721
- Turnover high again at HK$104.4 billion, but slightly down from yesterday’s ~HK$105 billion.
- Implied volatility on the VHSI down 2.9%
- Hang Seng China Enterprises Index:
- Spot high-low-close-return: 11 199 / 10 815 / 11 126 / +2.84% (!)
- Futures-implied spot HLC: 11 207 / 10 806 / 11 151
- Turnover high again at HK$29.7 billion, but slightly down from yesterday’s ~HK$32 billion.
- Shanghai Composite:
- Spot high-low-close-return: 2 777 / 2 666 / 2 766 / +3.11% (!!)
- Shanghai A-Shares Top 50: HLCR: 9 038 / 8 425 / 8 946 / +6.18% (!!!)
- Turnover extremely high at RMB397.24 billion, but slightly down (!) from yesterday’s RMB401.15 billion.
- Shanghai – Hong Kong Stock Connect:
- Northbound quota balance use at RMB3.31 billion.
- Southbound quota balance use at RMB303 million.
- Southbound trading saw a RMB54million block trade to start off the day, and was ferocious after the lunch break, when the rally started in earnest.
- Northbound trading was net selling of Chinese shares for the first few minutes, to the tune of RMB128 million, as the markets overall opened down relative their Monday closes. Buying then quickly took over once the trading really started getting one-sided towards the buying side.
- Hong Kong Monetary Base:
- All quiet on the monetary base front… nothing of note to really report on here.
NOTE: For the futures-implied spots, I think my CFD provider for some reason uses a combination of futures in long and short fashion that consistently makes the Hang Seng Index undervalued by about 20-25 points, and the Hang Seng China Enterprises Index about 10 points undervalued.
Time for some technical analysis!
Hang Seng Index:
We essentially reversed a very large part of yesterday’s fall, parking right below the mother of all resistance levels:
- 21/63 EMAs right above
- 21/63 SMAs right above
- 38.2% Fibonacci level in the short-term.
- Downwards long-term trend right above here!
- All of these are in a range between 23 760 and 23 800!
- On the positive side:
- Price bounced right off the 50% short-term Fibonacci level…
- …together with the lower 21 Bollinger band, averting surf!
- The market fought off a very, very tough candle on the ADX/DMI indication, to “just” post an inside candle, but now we are primed for further upside as anything tomorrow above 23 800 will be ADX/DMI bullish positive, while we’d have to dig below 23 250 to extend the bearish indication.
- Given the resistances though, the market will have to fight tooth and nail for these gains.
- If it clears, then there will be a very, very significant test at 23 940, given the long-term Fibonacci and the peak from yesterday’s futures sitting right around there.
- Also, the 126 SMA will provide resistance around 23 870.
- Thankfully, the volumes are extremely elevated these days so there is a lot of cash to push positions with if traders have placed sell orders at these resistance levels!
Also, overnight markets are very bullish at the moment, seemingly off the expectation of further ECB stimulus on Thursday, and at least from the futures the market looks to open with a little pop!
Any trade above 23 800 during lunch will be positive enough that I think that the other indicators or resistances before 24 000 can be beaten, but if it occurs after lunch there is the question if there is enough volume to really assist the price on further upwards momentum. Any sustained price above 23 800 will slowly start to structure the moving averages into a very positive formation, meaning that the index can draw a lot of momentum from here should we see gains on a closing basis tomorrow.
Hang Seng China Enterprises Index:
Now, this looks positive!
- On the spot close, we are very close to the highest monthly close, but on the implied spot, we’re above it, closing above a closing level not seen since early September!
- 63 EMA/SMA cross providing bullish momentum!
- Rejection of the 21 EMA providing momentum!
- This coincided with a bounce at the long-term Fibonacci level, leading to a cross of the 23.6% short-term Fibonacci!
- We’ve traded higher than Friday’s doji candle! this counts for a lot more than it might seem!
- ADX/DMI bullish extension, which is nearly impossible to believe!
- The test tomorrow is at 11 225 – consisting of August highs, last week’s highs, and the negative channel top – and then there’s pretty clear sailing to 11 400 and above!
As I have mentioned before, the index fan patterns between the HSI, HSCEI, Shanghai Composite, and the A50 are still intact, and given how little resistance the A50 has above it, anything near the last two weeks of volume might very well push it higher, which should mean that there is a legitimate challenge by the HSCEI to be made on at least 11 225.
I’ll re-post the A50 chart here to keep you from scrolling.
Shanghai A-Shares A50:
As was noted on Friday’s price action, these inset Fibonacci levels, beyond the lowest one, have very little price action connected to them and thus are not “strong” resistances. Given that the price has ignored strong resistances to post 4-6% gains at times since the PBOC injected liquidity and lowered rates, I really don’t think that the levels prior to 9 369 are of much importance. The gains to be made from IPOs surfing the IPO pop and the general market sentiment seems to be enough to lift the markets significantly.
On more technicals, we had another beautiful Bollinger band rejection + important Fibonacci level bounce, so momentum is on the right way, although I’d be stupid to expect this pace of things going forwards.