ASX 200 Index holds at a 50% mean reversion, Hong Kong risks loom

• ASX 200 Index bulls reach to a 50% mean reversion.
• Geopolitics now in the mix to hamstring global equities. 

Australian shares are struggling to extend the prior day’s gain as the world gets back to the elephant in the room which is Hong Kong and US/Sino trade relations. 

At the time of writing, the ASX 200 Index is trading at 5,774.3. The index is testing a major resistance level in its upside correction of the 2020 COVID-19 meltdown. 

Despite the positive start to the week and prospects of a continuation of economic normalisation in the absence of a spike in COVID-19 new cases. Vaccine stories are also gaining traction, however, US equities soured into their close overnight. A Bloomberg story hit the screens late in the session and knocked stocks down to size. 

• US weighs sanctions on Chinese officials, firms over Hong Kong – Bloomberg

The US administration is on standby to respond to China in kind should a law be passed that will be a direct violation of agreements between both the US and Britain that could not come at a worse time for global trade relations.

The US President, Donald Trump, has committed preparing to take action against China this week over its effort to impose national security laws on Hong Kong. So far, no details have been given, but the markets know that the US administration is weighing economic sanctions on Chinese officials, businesses and financial institutions.

Go deeper here

In an article which goes deeper into this takes into account the FX markets risk barometer, AUD/JPY. There is a great deal at stake here for stock markets as well and more can be read on this major event-risk here: AUD/JPY: Bears getting set for potential major sell-off

Meanwhile, Aussie shares fell by about 0.7 per cent in early trade, with health stocks slumping the most which fell by 3.51 per cent in the ASX. CSL was falling the most by 4.14 per cent to $294.88. Materials and information technology sectors have also taken a tumble, down 2.53 and 2.13 per cent respectively.

ASX 200 Index levels

The bulls are grinding higher for a 50% mean reversion with a series of daily closes above prior daily resistance now turned support just below 5,500. On a continuation, bulls will target a close. A 61.8% ratio comes in at 6,127.

However, from a fundamental basis, which geopolitics continue to hamstring markets, weak hands in distribution tests could prevent completion of the correction to that golden ratio. If it is achieved, it will be a major discount for the bears.