Market Update: China’s Policy Shift and Futures Reaction
- The Politburo of China has outlined a “moderately loose” stance on monetary policy alongside a commitment to a “more proactive” fiscal approach, reminiscent of strategies employed during the Global Financial Crisis (GFC).
- In response, Hang Seng futures saw a dramatic rise of over 1,500 points, nearing resistance levels identified from November.
- The China A50 futures have broken past their 50-day moving average, though observing low trading volumes, which raises questions about the sustainability of this bullish trend.
Overview
China's latest policy announcements have evoked memories of the GFC-era approaches, stimulating immediate interest in the markets. The previously favored language of “prudent” monetary policy has transitioned to a more aggressive “moderately loose” outlook, coupled with a fiscal policy that is set to be “more proactive” than before. These developments are expected to generate a wave of speculation about future measures that could continue to stimulate market momentum into the next year.
This analysis will predominantly focus on the technical aspects of two key index futures connected to China: Hang Seng and China A50, further building upon discussions surrounding various industrial metals.
Hang Seng: Evaluating Price Movements and Trading Volumes
The Hang Seng futures experienced an impressive rally, surging more than 1,500 points post-announcement, breaking past the 50-day moving average in the process. As trading resumes, market participants will closely monitor the previous high of 21377, established on November 8, as a crucial level for confirmation of further upward movement.
If prices breach 21377, the next target will be 21663, a significant minor level that previously acted as both support and resistance earlier this year. A successful break above this could trigger a sharp movement towards 23334, which represents the double-top formed in October.
Indicators such as the RSI (14) and MACD have shown bullish signals over the past weeks, suggesting that the recent breakout may prove to have further potential. Traders are advised to consider dip-buying strategies and look for additional bullish breakouts in the near term. However, a key variable to monitor is the volume of trades; sustained upward movements typically correlate with increased trading volumes, which have yet to be evident in this rally.
China A50: Strong Movements but Weak Volume Indicators
China A50 futures present a similar scenario to that of the Hang Seng, with a notable jump above the 50-day moving average before encountering resistance at 14366, again mirroring levels established on November 8.
A successful breakout above 14366 would pave the way for a potential surge towards 14675, another level that has seen considerable activity as support and resistance this year. Should the bullish momentum continue, the October high of 16360 could be the next target. Conversely, a downturn would face significant support only at the 50-day moving average located at 13633, with further support seen at 12958.
While the RSI (14) and MACD are suggesting bullish conditions, the lack of robust confirmation and elevated trading volumes warrants caution. Traders may prefer to await more definitive bullish breakouts before entering new positions, establishing tight stop-loss orders to safeguard against sudden reversals.
-- Analysis continued
