Hang Seng Tech trapped in the AI slow lane

• AI winners elsewhere, AI laggards in Hong Kong
• Twin breakout failures reinforce downtrend
• 4620 remains the line in the sand

The AI divide

Hang Seng Tech continues to wallow near multi-year lows while tech indices across many other parts of Asia continue to go from strength to strength, with traders clearly voting on who they think is winning the AI supremacy race.

Part of the problem is that while investors remain enthusiastic about AI, the excitement is largely reserved for the picks-and-shovels. Right now, it's the chipmakers, semiconductor manufacturers and other AI infrastructure names that remain in vogue, not the platforms where the technology may eventually unlock the biggest synergies.

Bears vs 4620

Source: TradingView

Technically, the index looks horrible, stuck in a powerful downtrend beneath each of its key medium and longer-term moving averages. And just when it looks like it will break the bearish trend, we see one almighty reversal, as seen in the twin failed breakouts earlier this year.

Yet, despite RSI (14) and MACD providing a uniformly bearish message by revealing downside momentum is continuing to build, 4620 has proven tough for bears to crack thus far. Since being established in March, it's been tested on multiple occasions, including earlier today, yet has continued to hold firm. Yes, there was one successful probe beneath it, but it was quickly jammed back higher. As such, even though price and momentum favours shorts over longs, 4620 remains the focal point for traders, allowing for setup construction on both the long and short side.

If we were to see a break and close beneath the level, there's very little support to speak of until the Liberation Day swing low of 4250, making that an obvious target. A close beneath 4620, preferably followed by a retest and rejection, would strengthen conviction in the trade, with a stop above the level protecting against reversal.

However, as the price action has shown lately, even though the downtrend overhead continues to compress the range, that doesn't eliminate the possibility of playing for countertrend bounces, as we saw last week. If the index can't crack 4620, longs could be set with a stop below for protection, targeting either resistance from 4800 up to 4820 or October downtrend found just below 5000 today. The longer the index fails to break decisively below 4620, the more it may encourage those bulls who remain to squeeze in search of a sustained breakout.