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Super-Rare Signal Suggests Hong Kong Stock Market Has Hit Rock Bottom

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(Bloomberg) — A stock-market indicator is flashing an extremely rare signal that suggests Hong Kong has hit the bottom after years of Covid restrictions, a tech industry crackdown and a property-market implosion in China.

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Strategists who study charts this week spotted an event that last happened 55 years ago: a so-called crossover on a graph that combines the speed and magnitude of price changes to assess whether a security is about to make a big turn. A very similar shift in 2009 marked the start of a multiyear bull-run in the U.S.

To chartists, the switch that popped up in recent days could be the long-awaited signal every investor in the city is hoping to see: the end of a stock-market slump that drove the main index as much as 53% below the pandemic-era peak set in February last year.

The 14-month Relative Strength Index of Hong Kong’s Hang Seng stock index this month completed the turnaround — dropping below 30 and then surging back above that key threshold — for the first time since October 1967.

If it holds true, it could mark the end of the pain induced by almost three years of pandemic lockdowns, a backlash against big tech companies that breached government policies and a property implosion that bankrupted some of the biggest developers.

History shows that a security is typically “oversold” when its RSI dips below 30 and “overbought” when it rises above 70. According to Investopedia, strategists use the RSI to work out when to buy or sell securities and whether they are primed for a trend reversal. Chartists commonly study the 14-day RSI rather than the monthly view.

At the same time as charts give hope, new-found optimism around President Xi Jinping’s policy pivots and November’s epic stock rebound have prompted some major Wall Street banks to move away from their long-held bearish views on Chinese shares.

In 2009, around the time of the Global Financial Crisis, a similar formation on the S&P 500 Index marked the start of a bull-run, with the measure rising to an all-time record in January this year.

–With assistance from Li Zhao and Alex Millson.

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©2022 Bloomberg L.P.

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