H-Shares Set to Rally on Golden Cross: Technical Analysis

The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong is set to advance to levels unseen since May, according to Phillip Futures Pte.

The gauge’s 50-day moving average climbed above its 100-day measure on Sept. 30, forming a so-called golden cross for the first time in a year, according to data compiled by Bloomberg. The gauge advanced about 21 percent from this year’s low on June 25 through Sept. 19, a rally that some traders consider entering a bull market, amid signs China’s economy is improving. Since then the index has fallen 4.1 percent and is 9.1 percent below a high reached in May.

“We see the golden cross as a very positive signal,” Wang Zilong, a strategist at Singapore-based Phillip Futures, said by e-mail. “We believe the uptrend will remain intact and that the index may test the intraday high of 11,361.88 seen on May 10.”

The last time a golden cross pattern occurred between the 50-day and 100-day moving averages of the Hang Seng China Enterprises Index, on Sept. 27, 2012, the gauge advanced 25 percent through Feb. 1 to 12,215.03, the highest close this year, according to data compiled by Bloomberg.

A rally for the H-Share index may also support gains in the benchmark Hang Seng Index, which also formed a golden cross in September. The gauge’s 50-day moving average climbed above the 100-day one on Sept. 16 and continued to increase, approaching the 200-day moving average yesterday, when the index closed at 22,984.48.

That’s a sign the index may advance to 23,500, Tan Chee Tat, an analyst at Phillip Futures said.

The Hang Seng Index formed two golden crosses in September 2012. It surged 14 percent from the end of that month to a 21-month high on Jan. 30.

Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. A golden cross forms when a short-term moving average rises above a long-term measure, and is seen as a bullish indicator.

Before it's here, it's on the Bloomberg Terminal.