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The Hang Seng Index is Moving Towards a Key Low

My Hong Kong Breadth Index is now firmly in the bearish territory but it is not yet oversold and so it is too soon to say the bottom is in. This index gave a timely overbought warning on 22 Jan, ahead of the market peak. It was positive through the early part of the correction, warning that weakness had further to run because it always turns negative before a sell-off ends.  

With luck, the Breadth Index might fall below -1.5 on this leg of market weakness. This would signal an oversold extreme. A reading below -1.5 has signaled every major Hang Seng Index low of the past 20 years and can thus be useful for market timing.  

Hong Kong breadth is firmly bearish 

I’m watching to see if the indicator signals an oversold situation  


Source: Bloomberg 

If the Breadth Index does not reach an oversold condition we will wait for the Breadth Index to become positive before suggesting a low is in place. Historically it has proven costly to pre-empt a low before this condition is met. The Hang Seng has returned -17% p.a. with a negative breadth reading. 

If the Index fails to signal an oversold extreme we’ll wait 

Historically it has been costly to anticipate lows until the Index is positive 


Source: Bloomberg 


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