Asian indices hold key support, but for how long?

The Hang Seng Index (HSI) has extended its decline to invalidate our previous bias (that the market was performing a multi-month reversal). Part of that original argument was based on bullish volume preceding prices, yet in the past two weeks we have now seen bearish volumes dominate as prices have fallen.

Of course, what has not helped is decline of Alibaba (BABA). The stock has continued to print new all-time lows on high volume following their profit warning last month. Whilst Tencent (the largest stock on the index) isn’t in freefall it is clearly lacking bullish interest overall and sits just above a 3-month low. And although investors dumped Alibaba for JD.com, it is hardly in a strong bullish trend of its own. Ultimately, the trop three stocks of the HIS are not ‘doing their bit’ to support the broader index, which has allowed the HSI to fall to its lowest level since September 2020.

The HSI trades in a bearish channel on the daily chart and momentum leading into these lows has become increasingly bearish. Therefore the bias is now for an eventual break below 23,000. Yet the potential for a bounce from key support is also apparent, as the RSI (2) and RSI (14) both reached oversold levels and there has been little in the way of a pullback on the daily chart.

Furthermore, the Hang Seng China Enterprise Index (HSCE) has also stalled at a key support level at the same time as the Hang Seng. When you see multiple markets stall at such levels it can be an indication that traders may be about to book profits or simply switch direction over the near-term.

Plans are still on for Hong Kong to partially reopen with cross-border travel despite Omicron being detected. And if Beijing decides to step in and support the market, perhaps it can provide a more convincing bounce. But with the rapid rise of Covid in other parts of the world, it is hard to imagine we have seen ‘the’ low on these indices just yet. Especially when US markets are only beginning to accelerate their downwards trajectory. We therefore see any potential bounce as an opportunity for bears to enter at a more favourable price in anticipation of Asian indices eventually breaking down further.

As for the STI, it has fallen over -6% since its false break above a yet resistance zone. The decline was in a fairly straight line and yesterday produced a bullish inside day above the September lows to show bearish momentum is waning. This, along with RSI 2 and 14 being oversold at the lows, echoes the clues left by HSI and HSCE. We therefor also suspect that the STI may be able to at least pause for breath, if not bounce form current levels before losses resume. And a likely driver of how high it bounces or how quickly it breaks key support is likely to be surrounding the developments of the Omicron variant.

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

Open a Forex.com account, or log in if you’re already a customer.
Search for the pair you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.