Hong Kong’s Stock Market Rally ‘Overdone’: Technical Analysis

(Bloomberg) -- Hong Kong’s 5-day stock rally will falter because enthusiasm that drove the key index past the so- called resistance level of 19,000 has been “overdone,” UOB-Kay Hian Ltd. said. The Hang Seng Index climbed 3.7 percent to 19,502.37 yesterday, its highest close since Sept. 22. It’s the first time the gauge has closed above 19,000 this year, having fallen short of that level twice.“Institutional investors are very cautious at this level. The Hang Seng can’t stand firm above 19,000,” said Steven Leung, a Hong Kong-based director of institutional sales at UOB-Kay Hian. “The rally is overdone, and there are concerns over banks and property. The risk is that China may make use of comments to talk down the market.”

The index has rallied 72 percent from a more than four- month low on March 9 amid speculation stimulus efforts worldwide, including 4 trillion yuan ($586 billion) of spending in China, will revive global growth. The gains from the March low have outpaced the MSCI Asia Pacific Index’s 48 percent rally in the same period. The broader Hang Seng Composite Index is up 67 percent in that time.The Hang Seng Index’s 14-day relative strength index, measuring how rapidly prices have advanced in that period, was at 68 yesterday, according to Bloomberg data. That’s close to the threshold of 70, a level that some investors view as a signal the gauge is poised to fall.“Institutions are very quiet at this point. They want to buy, but the market has run ahead too quickly,” Leung said. “They’re waiting for the market to pull back to around 17,000 to start buying again.”