Hong Kong Index Remains in Downtrend, Possible Inverted Head and Shoulders Pattern

Published On: 16 January 2023, 9:45 AM | Jeraldine Tan, Senior Dealer

Hong Kong Index has been in a long downtrend since 2019. In the early part of 2021, it has undergone another bear leg. Towards the last quarter of 2022, Hong Kong Index tested the downward channel low and was strongly rejected. It found a lot of momentum and recovered almost 50% of the down leg.

The area where price is trading at currently is a resistance zone and if price gets resisted here and moves down, it will potentially form a neckline to set up an Inverse Head and Shoulders pattern.

Fundamentally, given China is reopening (and so should Hong Kong), the economy could start to see a recovery. Bulls may consider taking a conservative (since it may not be the best risk-return trade) long position here to participate.

A more prudent trade might be to await the formation of the Inverse Head and Shoulders to appear before entering at the Right Shoulder, on the break of the neckline, with stop-loss below the Head.

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