Hang Seng Index: Excitement as Golden Cross Forms

Summary:
• What is the outlook of the Hang Seng index as the golden cross pattern nears formation? We explain what to expect.

The Hang Seng index has become a shining star in a relatively dark world. The index has surged to the highest level since June 2022 as outlook for the Hong Kong and mainland China economies brightens. It was trading at H$22,465 on Thursday, meaning that it has shot up by more than 53% from its 2022 low, meaning that it is in a deep bull market.

Foreigners scoop Hong Kong stocks

The Hang Seng index has surged as data shows that foreign investors with substantial dry powder have are pumping resources in China. Data shows that foreign investors have spent over $14 billion acquiring Chinese shares this year. This is an important figure since it is higher than what they spent buying mainland China stocks in 2022. The same trend is being seen in Hong Kong, where they have spent billions of dollars.

Like in the US and Europe, the Hang Seng index has jumped because of short-covering. This is a situation where short-sellers start exiting or liquidating their trades fearing a short squeeze. Hong Kong’s short-sellers have generated substantial returns in the past few years as the index crashed by over 50% from its all-time high.

Other factors are in play. For example, the sharp correction of the Hang Seng left quality companies that were trading at a substantial bargain. Some good examples of these are Alibaba, Tencent, and Country Garden. Casino stocks like Galaxy Entertainment and banks like HSBC and Hang Seng Bank were also severely undervalued.

Hang Seng index technical forecast

The HSI index has made a smooth recovery in the past few months. As it rose, the index managed to cross the 23.6% and 38.2% Fibonacci Retracement levels on the daily chart. It is now nearing the important 50% retracement point. The index also moved above the upper side of the descending falling wedge pattern. It is about to form a golden cross pattern where the 50-day and 200-day moving averages make a crossover.

The Hang Seng is also sitting pretty at an important resistance level since it was the highest point on July 28. This was the point where it started the final phase of the previous bearish move.

Therefore, the outlook for the Hang Seng index is bullish, with the next reference levels to watch being at $23,000 (50% retracement) and the psychological level at $24,000.