Hang Seng’s suspect price action at odds with bullish narratives

• Hong Kong’s Hang Seng surged 4% on Tuesday but there’s been no follow-through buying
• Traders continue to sell rallies even with authorities rolling out measures to boost sentiment and prices

Hang Seng futures don’t look like they’re about to embark on a face-ripping rally, no matter how cheap valuations are and no matter how much government encouragement is doled out. Like so many countertrend rallies in this ugly bear market, the latest bounce looks like it may have already run its course based on the unconvincing price action seen in recent days.

Hang Seng futures suspect above 16200

Even though with the 4% surge registered on Tuesday, it barely registers on the daily chart. And the two subsequent daily candles since don’t provide any confidence the rebound will last, rejected twice at the 50-day moving average, adding to the six consecutive failures above 16200 in early 2024.

Even with renewed excitement towards the outlook for Chinese stocks from some quarters, the price action simply doesn’t back it up. There’s still no shortage of traders willing to sell rallies, even with the risk of being suddenly overrun by a catalyst the market truly gets excited about.

Given how poor the price action has been at 16200, those considering shorts could initiate positions around there targeting a return to 15,475, where futures did plenty of work either side of earlier this year. A stop-loss orders above 16450 would offer protection. Should the trade move in your favour, it could be lowered to entry level, providing a free trade looking for downside.

As a reminder, Hong Kong markets will close for Lunar New Year holidays from Saturday through to Tuesday next week.

-- Written by David Scutt

Follow David on Twitter @scutty

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