Technical Analyst, Saxo Bank
Summary: ASX 200 uptrend is weakening and could perform a correction before it reaches resistance area
Hang Seng And China A50 have both formed top and reversal patterns strongly indicating a correction to unfold
ASX 200 uptrend is slowing as the Index is nearing strong resistance area around 7,592-7,625. There is minor divergence on RSI indicating a weakening of the uptrend. A correction could be seen before ASX 200 reaches the resistance area. A correction that could take ASX 200 down to around 7,300-7,250. 21 and 55 SMA’s will provide some support limiting the correction but a dip down to support at 7,167 should not be ruled out.
However, the uptrend is still intact and ASX could move higher before a correction. Divergence on RSI is just a warning of a looming trend exhaustion and reversal behaviour.
Hang Seng Index has formed an Evening Star like pattern over the past three days. A correction is likely. A test of the lower rising trendline and the support at around 21,388 should be expected. If Hang Closes below the trend line and below 21,388 a sell-off down to around 20K could be seen possibly dipping down to the 0.382 retracement at 19,605 and to the 200 daily SMA.
To cancel and reverse the reversal pattern a close above 22,700 is needed.
There is no divergence on RSI indicating Hang Sang could move higher above 22,700 after a correction. No strong resistance until around 25K
FTSE China A50 has formed an Evening Doji Star like pattern which is an indication of top and reversal. A correction is in the cards and support 13,500 could be tested. However, a dip down to the 200 daily SMA and 0.382 retracement at 13,191 should not come as a surprise.
If A50 moves higher, which RSI indicates it could, a close above 14,445 will demolish and reverse the top and reversal and correction scenario, and A50 would be set for a move to resistance at around 15K.
RSI divergence explained: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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