Hong Kong Stocks in ‘Genuine Consolidation’: Technical Analysis

(Bloomberg) -- Hong Kong stocks are set for “genuine consolidation” since rallying from their March lows because the city’s benchmark indexes have moved below their upward-trending 50-day moving averages, according to Sun Hung Kai Securities Ltd.
“After ongoing declines, overall turnover still hasn’t shown signs of recovery,” Castor Pang, a Hong Kong-based strategist at Sun Hung Kai Securities Ltd., wrote in a report. “It seems to reflect investors don’t have a favorable view for the market going forward. It is believed that the market will keep on getting worse.”Shares worth HK$62.4 billion ($8.1 billion) changed hands daily on average since the benchmark Hang Seng Index reached its high for the year on Aug. 11. That’s lower than the average HK$72.2 billion a day between the start of the second half and the August peak, data compiled by Bloomberg show.

The index closed at 19,761.68 yesterday. It dropped to 19,522 on Sept. 2, below its 50-day moving average that day of 19,538.73.“Given the long-term uptrend that we’ve seen since March has been broken, I’d expect the Hang Seng to approach 19,200 in the coming two weeks,” Pang said in a phone interview. Once reaching that level, the measure will then rebound, with a resistance level at 20,000, he said.Moving averages are an indicator watched by some technical traders. They show the average value of a security or commodity over time and are useful for observing trends. Technical traders monitor patterns on daily charts for clues to price direction, and may sell or buy based on those signals.

Stimulus Measures
The Hang Seng Index has risen 74 percent from a four-month low on March 9 amid speculation stimulus efforts worldwide, including 4 trillion yuan ($585 billion) of spending in China, will revive global growth. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies listed in Hong Kong, has surged 74 percent from March 2, when it closed at a more than three-month low.Those gains have been pared in the past month, with the Hang Seng Index and H-share index losing 5 percent and 7.6 percent respectively amid concerns about the strength of China’s economic growth.Chinese Premier Wen Jiabao warned last month that the authorities can’t be “blindly” optimistic as the decline in external demand may continue, while the country’s banks have reined in lending to avert asset bubbles.