Hong Kong Hang Seng Testing Key Breakout Level

On September 9, we posted a chart showing a key long-term breakout in the Hong Kong Hang Seng Index. It broke above the 61.8% Fibonacci Retracement level of its 2007-2009 decline on a monthly chart at about 23,800. This level also signified 3 monthly tops since 2010, so the breakout was indeed significant.

Since that post, the Hang Seng has dropped straight down about 5%. Since we are looking through a long-term monthly lens, that is not a huge percentage. However, it has now pulled back to the breakout level, closing yesterday at 23,766. While bulls would have preferred that the Hang Seng simply take off and not look back, a pullback to to current levels is not unwelcomed – especially for those looking for an entry point.

This area offers an excellent entry point for longs, from a risk:reward perspective. As long as it can hold this former breakout level, it has tremendous upside potential once it resumes its uptrend. For longs entered here, a stop could be placed on a close below further support identified at around 23,000.

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