Chart of the Week Hong Kong 50:Back in the spotlight for China data week

What’s Happening? The rise and fall of Chinese markets has been one of the key forces driving trading activity over the last year. Concerns about China’s economy rocked markets through the first month or so of this year but volatility has subsided since the Lunar New Year holidays and market focus has gone elsewhere. This week, China’s economy and the reaction to data announcements may recapture the spotlight.

Technicals:

The Hong Kong 50 spiked upward between March and May of 2015, becoming extremely overbought in the process which ended in a double top. Between May and February, the Hong Kong 50 went into a major retreat that unfolded in three phases May-July, August-September, and the final washout between December and February.

 

Although it didn’t seem like it at the time, a major base formed in the index between January and March. Over that time, a bullish reverse head and shoulders base formed (circled) with a positive RSI divergence and an island bottom forming at the head.

 

For the last two months, the index has been under renewed accumulation. After breaking out of the base, it rallied into the 19,700 to 21,100 range where is has been consolidating with support emerging at the 20,000 round number lately. RSI dropped back toward 50 where it has levelled off, suggesting this may be a common pause for consolidation within an emerging uptrend, around 20,535 a 23% Fibonacci retracement of the previous downtrend.  

 

Fundamentals:

 

Chinese markets soared in the spring of 2015 when trading links between Hong Kong and Shanghai were improved. Since last summer, however, this rally has completely unravelled giving back all its gains and a lot more.

 

Through the three phases of the selloff that occurred mainly between May and February some participants have had difficulty distinguishing between trading driven by internal market dynamics (margin calls, forced selling/liquidations, selling bans for insiders, corporations and short sellers going on and off) and trading being driven by actual concerns over the heath of China’s economy and banking system.

 

Some things traders may be watching for in this week’s China announcements:

 

The overall economy has been sluggish for some time. Is it getting any worse, any better, or still struggling along?

 

Have the market selloffs of the last few months had any impact on the broader economy? Were they overdone?

 

Is the demand for Chinese exports showing any signs of improvement? What is happening with Chinese imports and demand for resources?

 

In addition to mainland China and Hong Kong indices, commodity markets such as copper and crude oil, and commodity sensitive markets including AUD, NZD, Australia 200, CAD and Canada 60 may be influenced by China data announcements this week.

 

Some of the main China data announcements this week include:

 

11:30 am AEST  Mon Apr 11              9:30 pm EDT   Sun Apr 10

 

            Consumer prices           street 2.4%

            Producer prices            street (4.6%)

 

 

11:00 am AEST Wed Apr 13               9:00 pm EDT   Tue Apr 12

 

            Trade balance               street $35.9B vs street $32.5B

            Exports                        street 10.0% vs previous (25.4%)

            Imports                        street (10.1%) vs previous (13.8%)

 

 

12:00 pm Fri Apr 15                            10:00 pm EDT Thu Apr 14

 

            GDP                            street 6.7% vs previous 6.8%

            Industrial production     street 6.0%

            Retail sales                   street 10.4%