The Hang Seng cash index traded higher on Tuesday, breaking above the upper bound of the downside channel that had been containing the price action since November 24th. On top of that, the index is still trading above the upside support line drawn from the low of September 25th, and also above all three of our moving averages on the 4-hour chart. All these technical signs paint a positive near-term picture, in our view.
Nonetheless, in order to get more confident with regards to the upside, we would like to see a decent break above the high of December 17th, at 26700. This would confirm the exit out of the downside channel and may initially pave the way towards the high of November 27th. If that barrier is broker as well, then we may experience extensions towards the 27470 zone, defined as a resistance by the peak of February 21st.
Looking at our short-term momentum studies, we see that the RSI lies above 50, but points east, while the MACD runs slightly above both its zero and trigger lines. Both indicators detect upside momentum, but the fact that the RSI is currently flat confirms our choice to wait for a move above 26700 before getting confident on more upside extensions.
Now, in order to start assessing whether the bears have stolen the bulls’ swords, we would like to see a dip below 25925. This move could signal the break below the upside line taken from the low of September 25th, and would also confirm a forthcoming lower low. We may then see declines towards 25570, which is near the low of November 6th, the break of which may set the stage for the 25165 area, marked as a support by the inside swing high of November 3rd.
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