Next stop Hang Seng Index multi-year resistance at 25000
Expect to see HSI test 25000 shortly. This is a 7-year high, prominent tried and tested resistance. This was a level forecast in 2015 and there is evidence that at least one other level forecast then was followed by the market.
25000 prominent multi-year resistance
Back in October 2015, I wrote that it was possible for a big Hang Seng Index retracement to then-5-year high at around 25000. In addition, I looked at previous crises then and found that it was possible for steep corrections to be followed by a 50% retracement. This was the chart I posted at that time.
This is what Hang Seng Index looks like right now.
Based on price action, we can see that level two was tested and respected. I expect to see some kind of reaction at point 3 as well. The significance of point 3 cannot be ignored:
- Round number, psychological level.
- Now a prominent 7-year resistance, the longer the duration, the more significant the level.
In my opinion, I consider 25000 a tried and tested, it not ‘the real‘ resistance of HSI.
This especially since we know that the rally above 25000 in the early half of 2015 was caused by an unnecessary and incorrect excitement driven by Shanghai-Hong Kong Connect (story of SHHK and SZHK Connect here).
If that exuberant rally pushing HSI up because of SHHK did not happen, where would HSI stop in 2015?
Are there reasons to believe that drivers exist to push HSI to SHHK high when conditions were more favourable then than now?
It is also worthwhile to consider if HSI does stop at 25000, it would be a 66% retracement from it’s 2016 low.