Falling shares in Hong Kong drove the Hang Seng index to a 3-month low of 22500 this morning.
With prices bouncing off of the multiyear trendline support TS1, a rebound is likely. The trendline connects the Oct ’08 and Fed ’16 lows at 10600 and 18250, respectively.
Despite bears having pushed prices below the multiyear support on Mar 18, ’20 the immediate recovery suggests a false break. That said, the recovery could continue to fresh multi-week highs close to or above the 25000 round resistance.
The 1-hour chart below shows a head and shoulders pattern. This is usually a continuation, not a reversal pattern.
Since the correction preceding the continuation seems to have been already clocked in at 61.80% of the 21150-24850 move, more upside can be expected.
Having prices reaching fresh highs above the ‘head’ higher could lead to an RSI signal, either bearish or bullish.
In case we see prices breaking above the neckline once again, we can expect fresh highs. If we see prices bouncing at the 23650 or the neckline itself, however, we can expect an invalidation of the bullish continuation.
In either case, we prefer to receive more signal from the RSI for further clues.