Hang Seng Index Has Rebounded. Is This a Dead Cat Bounce?

The Hang Seng index popped on Friday even as recession fears rose. The HSI index jumped by more than 2.70%, with property and insurance companies leading the gains. It rose to an intraday high of H$19,362, which was higher than this month’s low of $H18,746. The Hang Seng and Shanghai indexes were closed on Monday as Hong Kong celebrated the mid-autumn moon festival.

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Hong Kong stocks rebound

After weeks of plummeting, Hong Kong stocks made a spectacular recovery last Friday as global equities rallied. The rebound coincided with that of other key indices like the Dow Jones, Nasdaq 100, CAC 40, and Stoxx 40. 

The index rose even as concerns about the Chinese economy continued. There are signs of more weakness as the slow increase in the number of Covid-19 cases has led to lockdowns in some places. A raging drought and the rising risks of a confrontation between China and Taiwan have made the situation worse.

The property market is still facing its worst contraction in modern times. Indeed, the CEO of Country Garden, one of the leading property groups in the country, described the situation as a depression. Still, property stocks like Country Garden Holdings, Country Garden Services, Longfor Properties, and China Resources led the recovery. Insurance companies that have exposure to the sector like Ping An Insurance and AIA Group also rose by more than 3%.

Hang Seng index forecast

The daily chart shows that the Hang Seng index has been in a general bearish trend in the past few weeks. This decline saw it crash from $22,458 in July to a low of $18,840 this month. Now, it has made some recovery and moved above the important resistance level at $19,198. Still, it remains below the 25-day and 50-day moving averages. It has also moved slightly above the lower side of the falling channel.

Therefore, the index will likely keep rising as bulls target the upper side of the channel at about $20,000. A drop below the important support at $18,885 will invalidate the bearish view. It will signal that this rebound is part of a dead cat bounce. Check out and subscribe to InvestingCube’s S&R indicator for a more up-to-date Hang Seng forecast.

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