Meltdown across Asian equities yesterday was catalysed by weakness during the US trading session, and the selloff accelerated on Wednesday afternoon as more investors started to feel the pain, kicking off panic selling across markets.

Nikkei 225 and Hang Seng index registered their largest single day drop in more than a month, down 1.97% and 2.14% respectively. Traders and money managers are looking to lock-in profits by Christmas, as there seems no need for ‘window dressing’ after massive rallies in global equities this year. Valuation-rich technology shares, which have accumulated huge gains year-to-date, are more vulnerable against this headwind. 

Hang Seng index lost more than 600 points on Wednesday, breaking down its 50-Day Simple Moving Average line, which serves as a short-term support level. Trend indicators have already turned bearish and momentum indicators MACD is trending lower, suggesting more downside. Its next support levels could be found at 28,285 area (127.2% Fibonacci Extension level) followed by psychological support at 28,000 area.

The MSCI Asia-Pacific index has dropped for seven consecutive sessions, a clear sign that the regional markets have entered into a technical correction. Technical correction stands for healthy market pullback with the magnitude ranging from 5% to 8%. Hang Seng Index and Nikkei 225 Index have retraced 5.7% and 3.5% from their recent peaks respectively, still within a normal range of correction.

Singapore’s STI lost nearly 1.19% or 40 points on Wednesday, dragged down by weak sentiment across the region. Investors are taking this opportunity to lock-in profit in banking and property stocks, both of which has accumulated decent gains this year. Singapore bank’s dividend yields have been pushed down to nearly a decade-low, suggesting that the current price is over stretched and the yields are no longer attractive to investors.

Separately, Gold price to Silver price ratio has reached 79.1, a level not seen since April 2016, suggesting that silver has been relatively oversold comparing to gold. Historical data shows that the gold-to-silver ratio could not sustain above a critical level of 80 for very long. Usually after the ratio reaches 80, a reversal of silver’s bearish trend is likely to begin. Technically, silver is still in a bearish trend with both of its 10-Day SMA and SuperTrend (10, 2) sloped downwards. However, momentum indicator RSI and DMI both suggest that the price was deeply oversold and a technical rebound is possible in the days to come.

Technical Analysis:

Hong Kong 50 - Cash

  • Testing immediate support level of 28,285 (127.2% Fibonacci Extension)
  • Trend indicator 10-Day Simple Moving Average and SuperTrend (10,3) have both turned bearish, suggesting more downside
  • Momentum indicator MACD is trending downwards, with a bearish crossover formed. Near term momentum remains bearish

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