Hong Kong: Hang Seng Index (.HSI) face their worst slumps in operating income since the 2008

Hong Kong: Hang Seng Index (.HSI) face their worst slumps in operating income since the 2008

Hong Kong: Hang Seng Index (.HSI) face their worst slumps in operating income since the 2008

Hong Kong stocks are poised for their worst quarter since 2015 and corporate earnings are unlikely to save them.

After a sell-off erased more than US$600 billion from the city’s equities, attractive valuations stood as a potential bright spot. But those multiples don’t look so good when analysts keep slashing their profit forecasts for 2019. Their call for an average 19 per cent slump in operating income would be the biggest contraction for Hang Seng Index companies since the global financial crisis, data compiled by Bloomberg show.

While a protracted US-China trade war and a weak yuan are to blame for a big chunk of the profit reductions, the latest cuts reveal a deeper issue. With Hong Kong’s slowing economy buckling under the pressure of 11 straight weeks of protests, demand for everything from bank loans to utility gas may be jeopardized.

The gloomy profit outlook comes at a critical time for Hong Kong’s equity market. While cheap valuations spurred some dip-buying this week, strategists at Morgan Stanley and Credit Suisse Group are among those turning more bearish. The Hang Seng Index is still down 13 per cent since its April high, one of the worst returns in the world.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

By the way, prices are vulnerable to a correction towards 26,954.37.

The projected upper bound is: 26,856.72.

The projected lower bound is: 25,190.33.

The projected closing price is: 26,023.53.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.

An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend. It then signifies that the momentum may be shifting from the bulls to the bears.

If the engulfing bearish pattern occurs during a downtrend (which appears to be the case with HANG SENG INDEX), it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 86.8919. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 4 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 38.26. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 3 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 49. This is not a topping or bottoming area. The last signal was a buy 6 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 2 period(s) ago.

Rex Takasugi – TD Profile

HANG SENG INDEX closed down -221.318 at 26,048.721. Volume was 0% above average (neutral) and Bollinger Bands were 63% wider than normal.

Open     High      Low     Close     Volume___
26,272.91026,288.24025,977.67026,048.7211,780,728,320
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 25,841.94 27,596.72 27,622.86
Volatility: 21 19 21
Volume: 1,811,297,920 1,575,900,416 1,790,922,624

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

HANG SENG INDEX is currently 5.7% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of .HSI (mildly bearish). Our trend forecasting oscillators are currently bearish on .HSI and have had this outlook for the last 18 periods.

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