That was… a peculiar type of day. Technicals mattered little, other markets mattered less, and the exits were really hit hard. I won’t really go into the full statistics according to the five groups I normally dive into, since it was essentially only the Hang Seng Index that really kicked loose, given that a correction of sorts on the China Enterprises wasn’t that big of a stretch and that it has a much more defined resistance structure with trends and prior peaks.
Nope, the Hang Seng Index was in a league of its own today, and it really sets the index up much more differently from a technical perspective:
- We failed to test the long-term Fibonacci at 23 940!
- Around 23 800:
- 21/63 SMAs
- 21/63 EMAs too!
- Short-term 38.2% Fibonacci level
- Broke below the 189 SMA (23 370) in futures trading, but settled at it essentially in spot trading.
- Settling below the 23 270 “weak” 50% short-term Fibonacci level and settling at the very lowest part of what can be considered the extended range.
- Potentially initiating 21-day Bollinger band surf lower and breaking below the lower such Bollinger band in trading.
- ADX/DMI negative cross with a “death pillar” of a low close on a range-extending candle.
- Turnover was massive at HK$105 billion! (Time to throw at least one forecast out already!)
In reality, it looks much less severe: the futures closed at 11 pm, when the futures closed and literally at the same time that US PMIs were released, beating estimates and sending many other global indices noticeably higher, implying a close of around 23 350 on futures-implied HSI spot had the information been released, say 10:30 pm Hong Kong Time instead.
It is, however, a horribly bad picture that deserves some more discussion.
First off, the problem here is that we’re now reversing a lot of momentum. We’re back to essentially November 20th after relatively consistent gains or consolidations of such gains, and Hong Kong monetary base data still holds the monetary base as expanding and different liquidity and investment measures at a level consistent with those features, and not ~700 HSI point sell-off market conditions. Volatility even increased, which hasn’t been the norm on down days for the last few months!
The Hang Seng China Enterprises Index is more volatile and should see more movement, especially on corrections, but even that index retreated less in percentage terms than the HSI, and the currently supported Shanghai Composite shrugged off the PMIs like a 50.3 reading, representing at 0.2 miss to estimates, isn’t much to throw a fit over and kept volumes chugging at RMB400 billion.
So… I’m actually at a loss for how to describe this fall in the Hang Seng Index… nothing really speaks to me on why the index was below 23 700 after the pre-market trading close, who even sold, or why the sell-off was so violent. The only thing I can think of is Ping An raising share capital at HK$36.5 billion, and people taking cash out of the HSI spot market on Monday to finance their private placement positioning on Ping An, which would help explain why the HSCEI didn’t fall as proportionally much after volatility is considered. That is, literally, the only thing that makes much sense to me, as those investors would have access to the pre-market trade.
It should mean that the market is somewhat “taking a breather” and aside from the initial adjustment, very little has fundamentally happened in the market to warrant 3% lower valuations across the block, and if anything this signifies that the opportunity space in China for large fund houses (such as insurance- and pension funds and other social security financiers) is getting much, much better, and should, thanks to the Shanghai – Hong Kong Stock Connect and Hong Kong’s much more mature financial markets, provide a lot more upwards potential.
This explanation is still not good enough in explaining why the markets fell more than 1% in open market trading, but I guess a lot of people followed the lead and took some time to re-assess their positions. Let’s see what today brings and if we can reclaim some of the lost ground here and give us a DMI two-day kiss…