Everything should be self explanatory in the chart. Of course - this will work until it doesn't, but since the 1990, the HSI index hitting its upper resistance line has nailed every major global market top within a very short timeframe. You can see how perfect this has timed markets with the correlation to the SPX index in the lower chart. Hypothetically speaking, when you would hit the upper resistance line, you would short emerging markets to hedge against whatever is about to happen. Then when this hits the lower resistance line, you would go long major market indexes until you arrive back at the upper resistance line (SPX, etc).
2022 - End of an Era?
As most can see, this chart is a very very long narrowing wedge / channel. The volatility between drawdowns and rises was far greater the further back you go, and the drawdowns have all been proportionally smaller as we narrow within the channel bouncing off top and bottom resistance (and sometimes in between). With that said, narrowing channels like this indicate increasing fragility of the trend, and potentially suppressed volatility. Eventually, something has to give, and this will break the long term pattern.
I believe we're close to that point, and that's not a good sign for asian markets. I don't know exactly what would happen if this breaks to the downside, but I don't think it would be pretty. Stable systems such as this have a way of becoming extremely chaotic when the stability breaks. Chaotic markets = drawdowns / crashes, and given the current state of Chinese markets and politics, this shouldn't be too surprising that it could be possible. The ongoing Chinese real estate crisis is just getting going, and the party has so far remained committed towards deflating their real estate bubble. Fundamentally, Hong Kong is just as bad if not worse than China from a real estate speculation / valuation perspective, yet there are additional problems in HK with people fleeing the territory due to the Chinese takeover following the 2018 protests. Demographics are strongly against this market, valuations are strongly against this market, and the current economics of this look rather dire without any major positive windows into future development / growth.
From a technical perspective, this is also far weaker than every other time it's hit the bottom resistance line. Note that every other instance we hit the lower resistance line, we also were hitting the lower monthly bollinger band at the same time. Not included within the chart, but momentum indicators also are showing a lot of negative divergences. You can see this from simply looking at the chart and noting the covid recovery bounce has been far weaker than every other post-lower boundary recovery bounce. We didn't even make it up to the middle resistance line before retesting.
My guess and view is that this won't break easily, but it will break dramatically. I think there is a good chance we see another rally here back towards one of the resistance lines, but after that, momentum will have really worn off. I also think we could chop around the lower resistance for a while, but ultimately, we are likely going to break down here on a secular basis. Maybe Kyle Bass will actually be validated after being wrong for 10+ years (except he's probably already been stopped out of all his poorly timed trades)?
HK stock market now being controlled by the communist policy instead of capitalism, it is no longer the same and therefore breaking a long term technical trend make a lot of sense to me.
On top of that, a lot of people still haven't realized both HK and China population is already declining in an irreversible trend.
sundeepmehton
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which one is the best platform for trading in hongkong ?
PhakeNick
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HSI component have changed dramatically over the years with two-third of the index's component now being Chinese stocks. The economy of Mainland China have changed direction since last decade and then in this decade these changes is also starting to pose significant impact and change to the economy of Hong Kong.
fornost12345
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you nailed it brother! but what now - ive been using this to time markets for a while haha
GTStockmaster
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@fornost12345, my bias is quite negative here on a longer term basis. Shorter term, we've been in a protracted drawdown, so I wouldn't be surprised to see more violent snapbacks or more frustrating grinds lower. In my opinion, I think this is kind of a sign of the changing times and an accumulation of a lot of pent up problems in the global financial + political world. This is specifically more related to asia, but will be global regardless. Don't mistake me for a permabear here, there are places to be bullish and times to be bullish, but it looks to me like a potential place marker of an extended period of global upheaval + the cleanup of accumulating but unresolved problems in global financial markets and economies. Obv taking a lot of other views and obvervations into account with this take however.
Complex systems analysts tend to call these types of things phase transitions. IE, when a stable system that operates within a range of constraints can no longer stay within the constraints that previously governed it's behavior, you get a period of chaos as the system flails about trying to find some type of new stable equilibrium. I think the concept of a phase transition really accurately describes a lot we've been seeing in society + markets in recent times. "Cycles" people would probably point to periods like the 1930's or 1970's as potential analogs. I'm not really a "cycle" person on a bigger picture view since I don't think pre-set timeframes for things make much sense. But there are definitely a lot of familiar patterns that are worth observing, which have similarities to other periods of large-scale transition and upheaval.
@GTStockmaster, What about valuation though? China stocks are historically cheap, I don't think it will stay under 20k much longer and I certainly don't see a long-term, even more bearish movement. Unless the Chinese companies had half of their revenue gone, (Alibaba & Tencent, etc are still growing by the way) the prices don't make sense.
GTStockmaster
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@alvintanasta, Valuation is irrelevant here. "China stocks are cheap" is great, except they can literally just make up #'s and nobody would know the difference. Regardless, all valuation metrics are BACKWARD looking. They only show what happened in the past quarter and prior, not the forward-looking outlook. Markets attempt to discount future cashflows. This is why so many AliBaba "value" investors have gotten killed - they just look at the great numbers and completely ignore that the gov't is taking the company apart piece by piece with regulations, fines, and antitrust enforcements. By doing this, they are destroying the future cashflows of these companies and effectively nationalizing them. Then on the other side, the Chinese econ is in a very fragile state with real estate problems still simmering, new covid lockdowns scaring people there, and commodity prices surging that they are forced to import (oil, copper, wheat, etc). If you're China, the worst thing you can see in markets is a surging dollar alongside surging oil & commodities.