Looking for treasures during the consolidation period (May 6, 2024)

Preface: The three major U.S. stock indices surged last Friday, while today the Hong Kong stock market fluctuated within a narrow range......

Hong Kong Market Update

$Hang Seng Index(00HSI.HK) did not open higher as many stock analysts predicted, but instead opened almost flat. In the first half, the Hong Kong market lacked direction, fluctuating around 18,400. In the second half, the market gained some momentum, approaching 18,600 again, and finally closed at 18,578, up 102 points. The trading volume was HKD 144.5 billion.

Strategy

$Hang Seng Index(00HSI.HK) opened higher last Friday. Although it ended up closing lower than the opening, it still left a gap between 18,200 and 18,300. Both last Friday and today, the Hang Seng Index encountered resistance near 18,600. For now, the index may consolidate between 18,300 and 18,600 in the coming days. Whether it will break upward remains uncertain. As I mentioned in my previous article <May Outlook: Investment Preparations for Stocks, Gold, and Forex Before "East Rises, West Falls" (Part 1) (May 3, 2024)>, if we measure the potential rise of the Hang Seng Index using a head-and-shoulders bottom pattern, it could reach 19,500 optimistically, but the 1.618x target is around 18,600. So, whether it consolidates or peaks is possible. Personally, I believe the index is more likely to consolidate at this stage rather than peak, and a pullback is still some time away. This week, the Hong Kong market may not show much movement until next week when $BABA-W(09988.HK) releases its quarterly earnings, which could bring new developments.

With the market sluggish, the performance of blue-chip stocks has also become stagnant. Last week's momentum stocks—$HKEX(00388.HK), $TENCENT(00700.HK), $MEITUAN(03690.HK), and $JD-SW(09618.HK)—only rose about 1% today. With the broader market hard to trade, it might be worth looking at second- and third-tier stocks. Historically, when the market consolidates, these stocks tend to rally, so I call this a treasure-hunting time. With luck, you could see gains of 30-40% in a single day.

How should you hunt for treasures? I start by identifying sectors and then look for second-tier stocks within them. For example, earlier, $SENSETIME-W(00020.HK) was a second-tier stock in the tech sector. However, SenseTime is not my current recommendation, as it has already risen nearly 200% from its low and could pull back anytime. Still, the tech sector remains my focus for treasure hunting. With Alibaba's earnings next week, related stocks might rally in advance, such as $ALI HEALTH(00241.HK) or $WEIMOB INC(02013.HK). I'm just throwing out examples—do you have any other recommendations? Feel free to leave a comment for me to consider.

Good luck to everyone.

(The above views are solely my own. The investment strategies provided in this article may not be suitable for everyone and should not be construed as an invitation or intention to buy or sell any financial products. Stock prices can rise or fall, even becoming worthless. Trading stocks does not guarantee profits and may result in losses. Investors and clients should exercise caution and consider this as one of many factors when making investment decisions.)