Market News & Analysis
Featured Trade (HK Stock): Geely Auto downtrend remains intact despite stimulus measures
Kelvin Wong January 10, 2019 7:05 PM
Medium-term technical outlook (1-3 weeks) on Geely Automobile (HKG 0175)
Geely Auto was one of the worst performing stocks listed on the Hong Kong stock last year where it declined by a horrendous 49% versus a decline of 14% seen in both the benchmark indices; Hang Seng and Heng Seng China Enterprises (H shares). The main business flow of Geely Auto is derived from China’s automobile market where domestic demand has been weakening since the second half of 2018 due to a tighter credit condition and a sharp drop in consumer sentiment trigger by slower global growth and uncertainties that arise from the on-going trade tensions between U.S. and China.
The share price of Geely Auto has started the new year in 2019 in a sombre mood where its share price continued to tumble to print a low of 10.08 on 08 Jan 2019 which has recorded an accumulated loss of 66% from its current all-time level of 29.80 on 22 Nov 2017. To address the current lacklustre consumer demand seen in China’s domestic market, the state planner; National Development and Reform Commission (NDRC) made an announcement on Tues, 08 Jan on plans to introduce fresh stimulus measures to increase domestic consumer spending on automobiles and appliances. Geely Auto has reacted positively where its share price rallied by 15 % from 08 Jan low to print a high of 11.60 in today, 10 Jan session.
Key technical elements
- Despite the recent rallies seen in the past two days, the primary downtrend in place since its 22 Nov 2017 high of 29.80 remains intact where it has continued to evolve within a descending channel from 12 Jun 2018 high (see daily chart).
- Also, the rebound from its 08 Jan 2019 low of 10.08 has appeared to be more of a corrective structure rather than the start of a bullish impulsive wave structure to reverse the on-going primary down trend. In the past two trading sessions, the price action has formed bearish candlestick patterns to fill up the immediate gap resistance of 11.52 where it formed a daily “Doji” on 09 Jan followed by a “Shooting Star” at the end of today, 10 Jan session. These observations suggest that the recent positive sentiment has started to wane.
- Momentum readings are also indicating further potential downside. The long-term weekly RSI oscillator still has further room to manoeuvre to the downside before it reaches an extreme oversold level of 21. The daily RSI has reached oversold condition, but it has not flash out a bullish divergence signal.
- The key medium-term resistance stands at 13.82 which is defined by the upper boundary of the descending channel from 12 June 2018 high, the former medium-term swing low area of 13 Nov 2018 low and close to the 61.8% Fibonacci retracement of the last impulsive down move from 03 Dec 2018 high to 08 Jan 2019 low (see daily chart).
- The next significant medium-term support rests at the 8.50/7.10 zone which is defined by the long-term secular ascending trendline in place since Oct 2008 swing low, the lower boundary of the descending channel from 12 Jun 2018 high and a Fibonacci expansion cluster.
Key Levels (1 to 3 weeks)
Immediate resistance: 11.52
Pivot (key resistance): 13.82
Supports: 10.08, 8.50 & 7.10
Next resistance: 20.70
The primary downtrend remains intact for Geely Auto where the key medium-term pivotal resistance stands at 13.82 for a potential impulsive downleg to retest the recent 10.08 low of 08 Jan before targeting the next supports at 8.50 and 7.10.
However, a clearance above 13.82 invalidates the bearish scenario to open up scope for an extension of the corrective rebound towards the former major range support from 29 Sep 2017/27 Apr 2018 now acting as a resistance at 20.70.
Charts are from eSignal
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.