The Hong Kong 50 index reached a 14-month high of 27731 earlier today, though it’s now struggling to hold on to those gains. The index has been on an uptrend since late December, trading within an upward linear regression channel.
The near-term bias remains strongly bullish according to the MACD, which continues to rise and remains above the red signal line. However, the RSI suggests the current rally is overstretched. The RSI is currently well above the 70 overbought level and is approaching 80. A correction in the short term is therefore a strong possibility.
Further gains should see the index meeting resistance at the upper band of the regression channel at 27775. This level also acted as a resistance area in the past. Above that, the psychological 28000 handle is the next resistance level to watch, followed by the previous congestion area around 28300. A successful break above these levels would open the way towards the April 2015 high of 28616, which was a 7-year peak.
Alternatively, a downside correction would see the index finding support at the tenkan-sen line just below the 27200 level, while further declines would bring into scope the middle of the regression channel at 26800. A drop into the lower channel would weaken the bullish bias, with support coming from the kijun-sen line at 26450 and the 50-day moving average at 26000. A breach of these levels would leave the index exposed to the lower channel band, which if broken, would shift the bias to negative.
In the medium-term, the outlook is also bullish, with price action firmly above the upward sloping moving averages and the Ichimoku cloud.
