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Featured Trade ("H" share): Country Garden bearish woes are not over

Medium-term technical outlook (1-3 weeks) on Country Garden (HKG 2007)



Key technical elements

  • The share price of Country Garden (“H” share listed on the Hong Kong Stock Exchange), a major property developer and construction with projects that are mostly concentrated in China has plummeted by 59% since its all-time high of 19.16 recorded on 11 Jan 2018 to print a recent low of 7.85 on 24 Oct 2018).
  • Country Garden has managed to stage a rebound of 29% in the past 4 weeks to record a high of 9.96 on 03 Oct 2018 reinforced by international factors; the recent dovish speech from Fed Chair Powell that stated the current policy fed funds rate “is getting closer to a neutral level” and the Trump-Xi dinner date on 01 Dec 2018 after the G20 summit that concluded with a 90-day grace period trade war truce between both sides.
  • From a technical analysis perspective, the aforementioned rebound is likely no considered a bottoming process yet but rather a ‘dead cat bounce” that will resume its on-going major down move in place since Jan 2018.
  • The rebound has formed a “bearish flag” ascending range consolidation where it has been accompanied by a declining volume with weak momentum where the daily RSI oscillator has flashed a bearish divergence signal a significant corresponding resistance at the 62 level.
  • The key medium-term resistance now stands at 10.54 which is defined by the former range support from 03 Aug/12 Sep 2018, the upper limit of the “bearish flag” and close to the 23.6% Fibonacci retracement of the recent decline from 07 Jun 2018 high to 24 Oct 2018 low.
  • The next significant support rests at the 7.33/12 as per defined by a Fibonacci projection cluster (see daily chart).

Key Levels (1 to 3 weeks)

Pivot (key resistance): 10.54

Supports: 9.40 (downside trigger), 7.33/12 & 5.55

Next resistance: 12.44

Conclusion

The bearish woes of Country Garden still linger despite its recent rebound of 29% from its Oct 2018 low. If the 10.54 key medium-term pivotal resistance is not surpassed and a break below 9.40 (the lower limit of the “bearish flag”) is likely to open up scope for a potential fresh impulsive downleg to target the next support at 7.33/12 and below it sees a further plunge towards the major support of 5.55 (the former swing high area of Oct 2013 & close to 76.4% Fibonacci retracement of the entire long-term secular uptrend from Oct 2008 low to its current all-time high of Jan 2018).

On the other hand, a clearance above 10.54 invalidates the bearish scenario for an extension of the corrective rebound towards the next resistance at 12.44 (swing high areas of 09 Aug/22 Aug 2018 & pull-back resistance of the former long-term ascending channel upper limit failure breakout).

Charts are from eSignal



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