In the past few weeks, we see the HSI reversing out of its downtrend at around 24,000 pts and hit 26,200 pts during the reversal. This short term rally had confirmed that its downtrend channel started back towards the end of July 2021 had been broken. But it remains to be seen whether a reversal will take place. At the current moment, it seems that we are looking at a reverse head and shoulders formation (Bullish) on technical chart. The price may also consolidate at the levels between 24,000 – 26,000. A break above the neckline at 26,200 is needed to confirm its price reversal from its downtrend channel.
MACD: Returned back to baseline after the recent rally but has not shown a clear reversal.
RSI: Current level around 38 and has not gone over into the oversold territory.
I believed that the current pullback presents opportunity for investors to accumulate. Traditionally, the HSI has rallied during the year-end season and stopped its rally around the CNY period. The recent official data has reflected a slowdown in China’s economy and that has caused some concerns among investors. I would ask if this slowdown has been priced into the valuation. On top of that, the regulatory risks further added to the bearish sentiments among investors.
The HSI hit a high of c.31,000 in February 2021 and pulled back substantially to hit a recent low of c.23,600 in September 2021 (a pullback of c.23.8%). For the record, Covid created market pullback of c.26.55% in early 2020. Trade war caused a correction of c.25.74% back in 2018.
In the recent years, we can see that the average market corrections for the HSI stands around 25% and thus, I will assume that the downside risks to the current correction will be limited and market should see lows at around current levels.