Technical Analysis: Asia Major Index – Is the Covid-19 culprit for the major sell down?
- The COVID-19 outbreak in Wuhan, China at the start of 2020 seemed to be kept under control but spiralled out of control in mid-January.
- The index was performing in January 2020, with Hang Seng reaching its previous year high at 29,000, Straits Times Index reaching close to 3,300 as well as the Nikkei 225 index closing above 24,000 points respectively.
- However, the technicals indicated that the January bullish momentum was weak and the sell-off occurs near the resistance level of all three indices which indicates that the sell-off was well included in the minds of the short-sellers.
The alternate scenario should the sell-off continue and break 18,000, will see immediate price continue to 15,506.81, which is 161.8% extension level of wave W before a strong rebound becomes likely.
Hang Seng wave analysis suggests that the index has completed the 5-wave primary phase from 2016 January to mid-2017. From there, the index has entered into a prolong zig-zag corrective wave which sees the index sliding further to 20,730.21 level, which is also the 161.8% extension level of wave ((i))-((ii)) of the larger wave ((C)). The rebound within the blue zone will be the start of the longest wave III of the cycle phase which will see the index breaking the high of 30,000 and subsequently 40,000 price level.
The Daily chart shows a clearer picture of the index’s price movement. From the price action momentum, we can conclude that the index had briefly rebounded at the 127.2% Fibonacci expansion level and this may indicate that the seller may wish to sell at a higher price between 24,899.93 – 25,147.54. Should the sell-off occurs at the intended sell-zone, the immediate target will be at 161.8% of 23,154.33 level.
The Straits Time Index had a similar price structure movement as the Hang Seng Index and the 5-wave impulse and zig-zag corrective wave also exhibited a similar wave movement. However, the only difference is that the STI’s wave (iii) of the (C) wave broke below the 161.8% expansion of wave (i) – (ii). As such we believe that the (iii) wave might extend towards the 200.0 expansion level which confluences with the support zone between 2,528.44 – 2,588.74.
Even though there be a rebound, the rebound may be short-lived and renewed selling pressure may resume at 2,900 level.
The strong sell-off on Thursday which saw price failing to close above the 2,700 psychological support mirrors the weekly chart mentioned above. As such, the Straits Time Index may continue its downside pressure towards the 2,500 level with a slight rebound at 2,644 before resuming the sell-off.
Tradable instruments:
CFD:
i) Hong Kong Index HKD5 CFD
ii) Straits Times Index SGD5 CFD
iii) Singapore Index SGD20 CFD
iv) Japan 225 Index JPY100 CFD
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