All trading involves risk. Ensure you understand those risks before trading.
All trading involves risk. Ensure you understand those risks before trading.

China A50 futures: oversold and primed for a bounce?

Article By: ,  Market Analyst
  • China A50 futures endure ugly start to trade on Thursday
  • Price has gapped lower below the 200-day moving average
  • When this oversold in the recent past using RSI, futures have often bounced
  • With two support levels in close proximity, we look at a potential trade setup

China A50 stock futures have been hammered on Thursday, as have most other equity futures across Asia. The US dollar is breaking out as US Treasury yields push higher, seeing traders abandon riskier positions ahead of quarter-end. The baby is being thrown out with the bath water.

But, for how much longer?

China A50 futures in bounce territory

Such has the degree of selling been in China A50 futures, it’s seen the price slide into oversold territory using RSI on a daily timeframe. I’m not going to dispute how ugly the price action has been – it is – but it’s interesting to note how the market has fared when this oversold in the recent past.

Zooming out, you can see scores below 30 on RSI have regularly coincided with market bottoms. And even when we haven’t seen a bounce, there wasn’t immediate follow through selling with the price ambling sideways before eventually dribbling lower.

Past performance is not indicative of future returns, and this time could easily be different. We’re only talking about a limited sample size, after all. But with two horizontal support levels located just below, the tendency to bounce creates an interesting trade setup.

China A50 futures gap lower in ugly open

Zooming in, you can see how ugly the price action has been, with futures not only gapping lower but doing so through the 200-day moving average, a level that’s often been respected including for periods earlier this year.

Long setup

Given support held at 11839 when tested earlier in the session, those contemplating longs could buy here with a stop just below the level for protection.

On the topside, the 200-day moving average would be the initial target. Just above, 11977, where futures bottomed earlier this week, is another possibility given the risk we may see traders attempt to close the gap created by the sharply lower open. But even then, the risk-reward does not screen as compelling. Realistically, to make the trade appealing, the target would have to be higher.

12054, where futures bottomed on Tuesday and Wednesday prior to the gap lower, would make it more palatable. Above, 12296 comes across as another possible target.

Depending on whether you take on trade and entry level at the time, you could also consider placing a stop below 11770 for protection, especially if you’re looking for one of the higher targets.

-- Written by David Scutt

Follow David on Twitter @scutty

 

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the market you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

© City Index 2024