citic securities further potential downside pressure within range configuration 1842572017

CITIC Securities (HKG: 6030)

(Click to enlarge charts)

Key fundamental factors

• Since the launch of the second stock exchange trading linkage between China and Hong Kong, the Shenzhen-Hong Kong Connect on 05 December 2016, northbound daily trading volume (towards China “A” stocks) has dwindled from close to 2.8 billion yuan to 0.5 billion yuan at the end of December 2016. Thus, the anticipated rush to trade Shenzhen’s new-economy and growth stocks did not materialise as expected. Negative for profit margins of China’s brokerages.
• According to estimates, China’s brokerages have closed to 40% to 60% of their proprietary trading portfolio allocated to fixed income/ bonds. Given that the benchmark 10-year government bond yield has surged from 2.65% from October 2016 to 3.4% in December 2016 and it still has further upside potential. Since the movement of bond prices and yields are inversely related, a further deterioration in bond prices will put downside pressure in the trading books of China’s brokerages. Negative for profit margins of China’s brokerages.

Key technical elements

• Since hitting a high of 20.45 on 09 November 2015, CITIC Securities has been evolving within a “Descending Triangle” range configuration with the lower limit set at 13.16.
• The daily RSI oscillator remains bearish below its resistance and the 50% level. In addition, it still has room to manoeuvre to the downside before it reaches an extreme oversold level.  These observations suggest that downside momentum of price action remains intact.
• The relative strength chart of CITI Securities versus the benchmark Hang Seng China Enterprises Index (HSCEI) is still advocating further underperformance of CITIC.

Key levels (1 to 3 months)

Intermediate resistance: 16.42

Pivot (key resistance): 16.94

Supports: 14.92/48 & 13.16

Next resistance: 18.16

Conclusion

As long as the 16.94 pivotal resistance is not surpassed, CITIC Securities is likely to see a further potential push down towards 14.92/48 before targeting the “Descending Triangle” major range support at 13.16.

On the other hand, a break above 16.94 may negate the bearish tone to see a squeeze up to retest the “Descending Triangle” range resistance at 18.16.

Charts are from eSignal

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.