The Hang Seng Index Futures (HKEX: HIS) have enjoyed a bullish morning trading session following the softer-than-expected inflation figures from the Chinese economy. Still, the decline in tech stocks threatens to cap the upside. The Chinese annual inflation rate fell by 0.3% to 0.7% for March from the 1.0% achieved in February. Inflation figures, together with the producer price index figures, which showed an expected 2.5% year-on-year decline for March compared to a 1.4% decline in February, helped ease the concerns of accumulation of inflationary pressure in the short term.

The index futures’ upside was capped by the tumble in tech stocks that had initially profited from the race against ChatGPT following the call for regulatory scrutiny by the state-run Economic Daily. The media outlet called for regulatory scrutiny of the tech stocks that it deemed “surged” without any progress in their particular AI technologies. Baidu Inc. and SenseTime Group shares fell by 5.67% and 1.2% during the Tuesday morning trading session.

Technical

The 4H chart shows that the index futures are currently trading within an ascending channel as the price action looks to regain some of the recently lost gains. With the index trading around the 23.60% Fibonacci retracement level, the reaction of the traders around the level could determine the direction of the index futures during the trading session.

For the bullish sentiment, rejecting the 23.60% Fibonacci retracement level could boost the bulls’ charge to retest the 20670 resistance level, a level of interest for the bulls. The move above the initial resistance could entice the bulls to firmly target the resistance level at 20838 as their next level of significance.

The bears could look to push the index futures below the 23.60% Fibonacci retracement level towards the 50-day moving average. A breakthrough in the 50-day moving average would send a bearish signal. Thus, a breakthrough would bring the 20080 and the 19905 support levels into play.

Summary

The calls for increased regulation might have hampered the tech-heavy index’s rally, but the appearance of the ascending channel could give hope to the bulls’ run in the short term. Thus, a trading opportunity could exist as the price action breaks above the 20670 resistance level but could fall short of the resistance level at 20838.

Sources: TradingView, South China Morning Post, Reuters.

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