Things are turning ugly, but relief might be on a way

28 sept 2023

Today, we want to highlight the latest developments in the Chinese stock market, which continues to sell off relentlessly. The Hang Seng Index made a new low near HK$17,352, which translates to a loss of nearly 15% since late July 2023. The decline in the CSI 300 Index is approximately the same. As for the U.S. indices, SPX lost about 8% in the past two months, and Nasdaq 100 lost about 8.2% in the same period. Besides that, VIX has increased to the highest level since late May 2023. Overall, the situation is starting to deteriorate quickly. However, for the past nine days or so, U.S. stocks have been trending down with the Chinese stock market, which brings us to the question of a potential rebound that could be on the horizon before the market moves ultimately lower (or starts recovering); we will assess the situation as it develops. However, prolonged weakness in the Chinese stock market and economy poses a serious threat to the the U.S. market.

Illustration 1.01

Illustration 1.01 shows the potential formation of a downward-sloping channel. If the price rebounds from the lower bound, it will be bullish in the short term. However, a breakout below the bound will be bearish. The extreme price deviation from the 20-day SMA and the 50-day SMA suggests a retracement toward these moving averages (acting as a correction).

Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = Bearish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

Please feel free to express your ideas and thoughts in the comment section.

DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

29 sept 2023

Nota

Yesterday, SPX turned slightly higher, and, overnight, in China, the Hang Seng Index gained as much as 3.2% at some point. Today, in the pre-market, SPX is up about 0.5%, and we expect it to test Resistance 1 during the day; a breakout above this level will be slightly bullish. A failure to break and hold above the resistance will raise our suspicion. We will update our thoughts on the situation with the emergence of new developments.

2 oct 2023

Nota

On Friday, SPX failed to break above Resistance 1. Now, we will pay close attention to $4,300; a failure of SPX to hold above this level will bolster a bearish case in the short term.