The Hang Seng Index fell back sharply after hitting a peak of 33,484 points on January 29. In this pullback, the benchmark slumped up to 4,355 points or 13 percent in two weeks.
During the setback, the market displayed a rare pattern where 90 percent of the stocks dropped.
On Feb. 6, the market saw just 96 stocks posting gains, and on Feb. 9 there were only 180 gainers. That means over 90 percent of the more than 2,000 listed firms notched losses on those days.
Such almost-across-the-board decline only occurred around 90 times during the nearly 6,000 trading days since 1995, or just 1.5 percent of the time.
As we’ve noted before, the pattern appears both in bull and bear market cycles, which have totally different implications.
If it occurs in a bear market, it usually occurs in the middle or at the end of bear market cycle, like what we saw in mid-2015 and early 2016.
When this pattern occurs frequently (defined as three times or more in a month), the financial market is often in a crisis situation, as seen during Asian financial crisis in 1997 and 1998, European debt crisis in 2011 and financial tsunami in 2007 and 2008.
By contrast, if it happens in a bull market, it usually signifies the last stage of a big correction.
Given that the Hong Kong market is still in a bull market cycle, the pattern suggests this round of market retracement is possibly coming to an end.
Historical data also shows that if the Hang Seng Index retreats to the 200-day moving average of around 28,000 points, the retracement will find strong support and the bull market cycle may enter the last round of rally.
The full article appeared in the Hong Kong Economic Journal on Feb 15
Translation by Julie Zhu
[Chinese version 中文版]
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