Hang Seng: Is a Turnaround Coming?

The Hang Seng Index, with everything measured in Hong Kong Dollars rather than US Dollars, offers a distinct perspective within our analysis portfolio, focusing on the Hang Seng Index Futures contract. Starting with a weekly chart overview, we've identified that the initial cycle likely concluded in 2008, followed by a flat correction. Notably, the correction for Wave B exceeded 100%, suggesting that the drop towards Wave (A) level, or slightly lower, is plausible.
However, there's an alternative perspective that at Wave (A) already concluded Wave II, although the rapid temporal progression for such a wave suggests this is less likely. We anticipate further declines, yet it's critical to acknowledge a potential Wave (1) and Wave (2) formation at the 78.6% level. A drop below this point should lead us towards the HK$10,500 mark, aligning with our initial entry point around HK$11,300. Despite this, it's premature to issue a limit order given the ample time to observe developments.

Daily chart observations further indicate an expectation of a 5-wave structure from (B) to (C), which has been forming quite elegantly despite Wave ((iv)) intruding into Wave ((i)) territory. This necessitates our acceptance of the current count unless we opt for an interpretation that sees a completed Wave (2) at the point marked as Wave ((iii)).

Delving into the 4-hour details reveals a persistent downtrend from the onset of what's identified as Wave ((iv)). To reverse this trend, surpassing the invalidation zone would be crucial, suggesting a reconsideration for long positions. Until such a shift occurs, the bear flag's presence likely continues to restrain any significant upward movements in the market.

Comment:

Regarding the Hang Seng Index, which we haven't looked at in a while as we were waiting to see how things unfolded, we've observed what we anticipated: a Wave (iv) that has neatly caught itself at the 38.2% retracement level, aligning with the trendline. This still strongly resembles a falling wedge pattern, but of course, we must continue to monitor it closely. Despite breaking below this trendline and then reclaiming it, we're currently beneath it again, suggesting the direction could go either way. However, our primary expectation remains a declining Hang Seng Index, as the downward correction doesn't seem complete. Unless we see a significant move into the invalidation zone, we'll have to proceed with this scenario and keep a close eye on developments. If the 38.2% level continues to hold and we find further evidence of a downward trend, we might consider placing short entries. We'll update you with any new findings or opportunities to enter a short position as they arise.