China Evergrande (3333-hk): Sell on Rumors

China Evergrande had exceeded our bullish forecast made in early June. However, its share price has retreated sharply afterwards, amid downbeat first half results and negative rumors.

Downtrend 1

China Evergrande (3333-hk), a top tier Chinese property group, had exceeded our bullish forecast made in early June after surging to a 15-month high in July. However, its share price has retreated sharply, amid downbeat first half results and negative rumors.

In September, the company announced a staggering 30% discount on all of its properties until early October, a period that is supposed to be traditional Chinese peak home-buying season, as an attempt to improve its cash flow.

Furthermore, the property giant may face a potential default as it may need to repay investors 19 billion dollars by January 2021, unless regulators approve its listing on the Shenzhen stock exchange, according to Bloomberg.

From a technical point of view, China Evergrande (3333-hk) remains under pressure as shown on a daily chart. Despite the fact that it has just shown a bullish divergence, it remains trading within a bearish channel drawn from July. The upside potentially is likely to be limited by the upper boundary of the channel. The level at $18.10 might be considered as the nearest resistance, with prices likely to test the 1st and 2nd support at $14.10 and $12.38. Alternatively, a break above $18.10 might suggest a further rebound to test the next resistance at $20.20.

Sources: Gain Capital, TradingView

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