Hang Seng Pauses for Breath Ahead of Alibaba’s Earnings

Tencent holdings has been a top performer among the Hang Seng mega-caps, rising 3.6% over the past five sessions. China’s retail sales and industrial output beat expectations, and news that President Xi and Joe Biden held an amicable meeting provided a boost to sentiment across Asian equity markets yesterday. It is the first time the two leaders have met ‘face to face’ since Biden was sworn in as president.

The Hang Seng also rose to a 13-day high by yesterday’s close, although technical resistance and looming earnings reports suggest the index is likely to pause around current levels before its next directional move.

Alibaba earnings set for tomorrow

Alibaba (9988 / BABA) are set to release their Q2 earnings tomorrow night, before the US market opens. You can read the full earnings preview by Joshua Warner here. And as the second largest company by market cap on the index, it’s an important one to watch for Hang Seng traders. According to Refinitiv, the mean analyst’s estimate is CNY 1.59 per, compared with CNY 2.25 per share for the same quarter last year. It remains a ‘buy’ overall (11 strong buys and 17 buys) with 2 analysts recommending a ‘hold’ and no sells. It currently trades at HKD $162 and the mean price target is $248.17, which leaves around +48% of potential should it deliver to expectations.

Weaker HKD acting as a potential headwind on HSI

We’re getting mixed signals from a couple of correlations with the Hang Seng. Volume analysis suggests prices could remain supportive as the OBV (on balance volume) is correlating with price action which shows bulls remains the dominant force overall. Moreover, as we noted in a previous report, the OBV managed to break a price cycle high ahead of price action – which is why we have favoured an eventual bullish breakout on the Hang Seng.

However, the HKD/USD correlation has broken down a bit lately as the surging US dollar has kept HKD under pressure. This has seen the index rise whilst HKD/USD remains near its lows, although it is trying to turn higher to re-establish its positive correlation. On balance we believe volumes remain bullish for the Hang Seng so it should remain supported, although it may meet resistance over the near-term. And another potential headwind for the index is if Alibaba’s earnings report disappoints on Friday.

Hang Seng’s correction likely completed around 25,500

We can see on the daily chart that the Hang Seng has recovered back above 25k and formed a higher low, with a bullish hammer around the 61.8% Fibonacci level. The 50-day SMA has also been respected as support. Gap resistance resides around 29,500 and we may find it acts as resistance leading into Alibaba’s earnings report.

Our bias remains bullish above 25k, so would welcome any dips towards that level as we anticipate prices will eventually break above October’s high and target the 26,700 – 26,860 level.

How to trade with City Index

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

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
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
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.