Hong Kong and Chinese stocks were swinging more than 2% and 1% on the wide indices today, crushing important technical levels like matches under the boot. The Shanghai A50 was even worse, having total intraday swings of 5.6% uuuup…. and then back doooown and then leaving the market (relatively) marginally up by a bit more than 0.6%. (Volumes were massive with RMB530 billion [out the window goes another prediction…] and HK$123 billion in respective separate markets, with higher Shanghai – Hong Kong Stock Connect activity than average since the opening.)
Watching this is interesting for certain, but the problem is that we’ve had a massive break lower, followed by a whiplash upwards, and then snapped right back down today. It feels like trying to read patterns into an explosion – exciting and moving but ultimately very dangerous for ones health in proportion to how closely you wish to look. It feels like there isn’t all that much to state before we get a trend in which volume is taking the Hong Kong markets. I do believe “up” will be the emerging power, mostly on the China draft and connection, making the move down a harder momentum play.
Getting away from headache-inducing impacts, let’s look at something a little bit more smooth and predictable:
Smooth as soggy soba! More after the jump!
The trend seems as solid as stone. The middle line seems more solid but holds up really well after price bounced against it along with both moving averages. It also shows that getting gains much above 17 900 will be a rather tough fight (as was tested earlier today) and it seems more likely that a slow gain and bounce above the middle line in a triangle fashion bounded above by the 17 880 level seems more reasonable.
This would be a similar pattern to what has been in action between the 11th of November and the 26th of November, and a similar trading structure from today would line up very well with the time frame up until the election on the 14th. Take gains off the market, sell short-term options on both sides of the market, and then buy into the market again after the election would probably be my play, potentially with a one-sided hedge if I see the market going one way or the other.
Here, we have similar features, of a slow-moving positive trend gaining power when bouncing off the 48/120 EMAs, then consolidating, and then bouncing off again. This market is treating long-term Fibonacci levels with a lot of respect, and unless something drastically happens I think the 118.18 Fib has been tested for the last time, as the markets now don’t have much financial data to go on but it’s all just politics and a held breath before the election, which will move the channel up towards 119.5, thus setting off another test right after the markets open after the election again, making the likely range on Friday the 12th somewhere around 119.5 to 121. I do think that the 120-level will force a lot of short-term volatility, but ultimately the 122 level should hem the upsides back, and the trend, EMAs and 118.18 Fib positioning will do the same on the downside.
However, I do think that after the election, the sustainability of this trend will be called into question on the floors and desks of traders. My bet would be for a two-week consolidation as the dust settles, and then ultimately lead to a clearer direction after the new year as budget proposals start crystallizing and Q4 economic data and the BOJ Tankan comes in.