Hong Kong: HANG SENG INDEX (.HSI) World braces for sell-off Monday at China market reopening
Central bank readies $174bn liquidity injection as coronavirus spreads further
Chinese equities markets are poised for their weakest Lunar New Year start in at least two decades when they return Monday from a break extended to contain the deadly new coronavirus.
Stocks will open between 5% and 9% lower, market strategists told the Nikkei Asian Review. They see the government pulling out all the stops to limit the damage, with the central bank announcing that it will pump 1.2 trillion yuan ($174 billion) of liquidity into the market Monday.
Provinces and cities including Shanghai have further extended the break to Feb. 9, which could limit volumes, the strategists said. While workers have been encouraged to telecommute, traders must be physically present in the workplace and use secure proprietary systems to ensure compliance.
China unveiled a slew of measures over the weekend to support the financial system, such as allowing insurers with ample solvency to “appropriately raise their investment” in equities from the current limit of 30% of assets.
The People’s Bank of China will inject the liquidity via reverse repo operations. “The banking system’s liquidity will increase by 900 billion yuan from the same period a year earlier” as a result, it said. The measure, notably large for a single-day operation, aims to ensure that banks do not squeeze companies by tightening credit or recalling loans.
Still, traders expect Monday’s opening to be worse than the 5%-plus declines for the country’s main benchmark stock indexes — the Shanghai Composite Index, the CSI 300 Index and the Shenzhen Stock Exchange Component Index — on May 6, when markets returned from a holiday break and a pair of tweets from U.S. President Donald Trump threatened trade talks. The economic impact is expected to be larger this time around.
Countries have imposed travel restrictions on China, and factories and retailers including Apple and Starbucks have closed locations in the mainland, raising questions over the economic impact.
Citigroup said in a note Friday it expects first-quarter Chinese growth to slip to 4.8% from 6% in the last three months of 2019. It also cut the full-year 2020 forecast to 5.5% from 5.8%.
Overall, the bias in prices is: Downwards.
The projected upper bound is: 27,262.74.
The projected lower bound is: 25,361.96.
The projected closing price is: 26,312.35.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.
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.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 3.6908. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 3 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 30.27. 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 sell 18 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 -166.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 5 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 6 period(s) ago.
Rex Takasugi – TD Profile
HANG SENG INDEX closed down -136.500 at 26,312.631. Volume was 23% above average (neutral) and Bollinger Bands were 62% wider than normal.
Open High Low Close Volume___
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 27,884.29 27,548.01 27,457.50
Volatility: 28 22 20
Volume: 1,704,625,280 1,525,082,240 1,663,109,760
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.
HANG SENG INDEX is currently 4.2% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of .HSI at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .HSI and have had this outlook for the last 2 periods.