Originally published by guppytraders.com
The Hang Seng is not a substitute for the performance of the Shanghai Index. The behaviour of the Hang Seng is very different and must be traded accordingly. There are occasionally superficial similarities but assuming they are anything other than superficial is a trading mistake.
The Shanghai Index has been in a long downtrend since February 2018. The Hang Seng has been in a steady uptrend since early 2016. The recent Hang Seng rebound from support near 25300 is not a duplicate of the Shanghai Index rise on recent weeks.
The Hang Seng trades in well-defined trading bands. The trend behaviour takes place within this context. The support area is near 25300 with the top of the trading band near 28500. This resistance level has been broken and a continuation of the breakout sets the next upside target near 32000.
However, there are additional resistance features to overcome. On the weekly chart the uptrend, starting early in 2016, is defined with a single uptrend line. This acted as a support level until around September 2018 when the index dropped below the trend line. Now the trend line acts as a resistance level.
Trend line resistance is currently near 30,000. A break above the trendline is very bullish and has the next target near 32000., the trend line is a powerful resistance force so there is a high probability that any further rise in the Hang Seng will cluster underneath the value of the trend line. This slows the momentum of the Hang Seng rise.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.