Seng Index, Hong Kong Equities, HSI - Technical Outlook:
- Hang Seng continues to drift lower.
- However, the broader uptrend for HK/China stocks hasn’t reversed.
- What is near-term outlook and what are the key levels to watch?
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HANG SENG INDEX TECHNICAL OUTLOOK - BULLISH
The gradual drift lower in the Hang Seng Index (HSI) reflects some of the unwindings of extreme overbought conditions. While the index could have a bit more downside in the near term, it is too soon to conclude that the uptrend has reversed.
The HSI index rose over 55% from a low of 14597 hit in October – the lowest level since the Great Financial Crisis. The 14-day Relative Strength Index rose above 80 at the end of January – the highest in two years. Levels above 70 are considered to be overbought and the closer the RSI goes toward 100, the more difficult it gets for a market to sustain the pace and the extent of the gains.
Price Facts, Sentiment, Narrative
![image1.png](https://a.c-dn.net/b/3hsAg6/image1.png)
On technical charts, the index has pulled back from quite a strong ceiling on a horizontal line from early 2022 (at about 22525), coinciding with the 89-week moving average. In the process, the index has fallen below minor support at the late-January low of 21383. The trend on intraday charts (hourly for instance) is down, and there is no sign of reversal yet.
Hang Seng Index Daily Chart
![image2.png](https://a.c-dn.net/b/0cKcsX/image2.png)
Chart created by Manish Jaradi using Metastock
However, on higher timeframe charts, including the daily charts, the index is consolidating within the four-month-long uptrend (highlighted in a recent update), as the color-coded candles show. Market breadth is still strong even after the retreat - 88% of the Hang Seng Index members are above their respective 100-DMA, and 64% of the members are above their respective 200-DMAs.
Hang Seng Index Daily Chart
![image3.png](https://a.c-dn.net/b/0pBwRE/image3.png)
Chart created by Manish Jaradi using TradingView
The index is approaching a crucial converged support area: the early-December high of 19926, coinciding with the 89-DMA and the 200-DMA. Stronger support is on the lower edge of the Ichimoku cloud cover (now at about 18000), roughly around the late-December low of 18885. The downside could be contained within the 18885-19950 area. The index would need to break below 18885 for the four-month-long upward pressure to reverse.
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--- Written by Manish Jaradi, Strategist for DailyFX.com