Hang Seng on Balance Volume Signals Fall: Technical Analysis

The Hang Seng Index’s longest winning streak in 2 1/2 years may falter as a technical indicator shows last month’s surge in stock prices isn’t being matched by a similar increase in volumes.

The on-balance volume for the world’s fourth-biggest equity market declined last week while the Hang Seng rose 0.6 percent, according to data compiled by Bloomberg. On-balance volume, developed by Joseph Granville, shows whether volume is going into or is being withdrawn from a security. Granville is a technical analyst who has been publishing the Granville Market Letter from Kansas City, Missouri, for about 50 years.

“This shows us the upward momentum of the market has weakened and the probability of a significant drop has increased,” Muhammad Alfatih, a technical analyst at Jakarta-based brokerage PT Samuel Sekuritas Indonesia, said in a phone interview. The Hang Seng may drop 7.3 percent within the next month to the index’s next support level at 22,000, close to the current 100-day moving average, he said.

On-balance volume is calculated by comparing the change from the previous day and adding or subtracting the volume based on the direction of the change. If the closing level is higher on a given day, the total daily volume is added to the previous day period. If the closing level is lower than the previous day, the total daily volume is subtracted.

On-balance volume on the Hang Seng Index fell to minus 863 million on Feb. 1 from 2.34 billion on Jan. 25, according to data compiled by Bloomberg starting Dec. 3.

The Hang Seng retreated through the final two trading days of last week as an official report showed China’s manufacturing expanded at a slower pace in January, missing economists’ estimates. The gauge climbed 4.7 percent last month, its fifth monthly advance and the longest such streak since July 2009.

Investors have poured $39 billion into equity mutual funds around the world this year, more than double the amount for the comparable period in 2012, according to data from Cambridge, Massachusetts-based research firm EPFR Global.

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