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The charts, graphs and comments in my Trading Blog represent my technical analysis and observations of a variety of world markets...
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* The content in my articles is time-sensitive. Each one shows the date and time (New York ET) that I publish them. By the time you read them, market conditions may be quite different than that which is described in my posts, and upon which my analyses are based at that time.
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DISCLAIMER: All the information contained within my posts are my opinions only and none of it may be construed as financial or trading advice...

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Monday, May 25, 2020

Hong Kong & Chinese Markets Face Economic, Political & Technical Headwinds

Hong Kong's Hang Seng Index (HK50) has been massively underperforming China's Shanghai Index (SSEC) since January 2019, as shown on the following monthly charts.

In fact, the HK50 broke below the bottom of its Andrew's Pitchfork channel in March this year, as the COVID-19 pandemic spread around the world from Wuhan, China and caused hundreds of thousands of deaths and untold catastrophic global economic destruction.

Such a channel break usually signals a shift in trend and sentiment from bullish to bearish. In fact, that has already occurred with the formation of lower highs and lows on this monthly timeframe. As well, the Balance of Power has, once again, turned negative.

No doubt, Hong Kong's markets will experience increased trauma, because Beijing announced this past week that they are introducing new national security laws aimed at limiting the rights of Hong Kong's citizens, in violation of the 50-year agreement made between the United Kingdom and China in 1997.

Furthermore, I wouldn't look for China to ramp up its global economic expansion anytime soon, as it turns its focus inward to service domestic markets. China's GDP contracted by 6.8% in Q1 2020, and Beijing, unusually, refused to provide a forecast/target for the remainder of the year.

I expect that these above-referenced headwinds and escalating global tensions with China will, ultimately, negatively impact the SSEC, not only from an economic and political perspective, but also from a technical viewpoint, inasmuch as it's already in downtrend and the Balance of Power is currently under bearish control on this longer-term timeframe.

In this regard, watch for a break and hold below the last swing low on the SSEC at 2440.91 for confirmation of increasing weakness...which will likely drag the HK50 further down, as well.

Major support lies at 17500 for the HK50 and 2000 for the SSEC.



Source: WSJ 

Source: Bloomberg