china life insurance potential corrective up move in place 1841222017

China Life Insurance (HKG: 2628)

(Click to enlarge chart)

Key elements

• The recent 14% decline from 25 November 2015 high of 23.10  has been reinforced by China’s regulators polices to restrict mainland Chinese purchase of insurance products issued by Hong Kong based insurers to slow capital outflows. Interestingly, the decline has stalled at a 19.70 support which is defined by a confluence of elements; the lower boundary of a medium-term ascending channel in place June 2016 low, Fibonacci cluster and the former swing high area of March/April 2016.
• Mean reversion indicators such as the daily RSI oscillator has continued to remain positive above its key trendline support (close to the oversold region) and still has room to manoeuvre to the upside before it reaches an extreme overbought level. These observations suggest that medium-term momentum is in favour to the upside.
• Any potential up move is still considered as corrective (dead cat  bounce) in nature as the stock is still evolving within a long-term bearish channel in place since its major swing high printed on April 2015 and recent rallies above the 19.70 support has been accompanied by lacklustre volume.

Key levels

Intermediate support: 20.40

Pivot (key support): 19.70

Resistance: 23.40/24.30

Next support: 16.00

Conclusion

From a technical analysis perspective, the current decline from the 25 November 2015 high of 23.10 to the recent low of 19.84 printed on 23 December 2016 has appeared to be overstretched where a potential corrective up move is likely to occur within a longer-term bearish trend.

As long as the 19.70 pivotal support holds, China Life may shape the expected corrective push up towards the 23.40/24.30 resistance zone (the upper limit of the medium-term ascending channel in place since 27 June 2016 low & a Fibonacci cluster).

However, failure to hold above 19.70 is likely to invalidate the preferred corrective up move scenario to trigger the continuation of its longer-term decline to retest the June 2016 swing low area of 16.00 in the first step.

Chart from eSignal

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