China A50 futures: oversold and primed for a bounce?

China A50 futures endure ugly start to trade on Thursday
Price has gapped lower below the 200-day moving average
When this oversold in the recent past using RSI, futures have often bounced
With two support levels in close proximity, we look at a potential trade setup

China A50 stock futures have been hammered on Thursday, as have most other equity futures across Asia. The US dollar is breaking out as US Treasury yields push higher, seeing traders abandon riskier positions ahead of quarter-end. The baby is being thrown out with the bath water.

But, for how much longer?

China A50 futures in bounce territory

Such has the degree of selling been in China A50 futures, it’s seen the price slide into oversold territory using RSI on a daily timeframe. I’m not going to dispute how ugly the price action has been – it is – but it’s interesting to note how the market has fared when this oversold in the recent past.

Zooming out, you can see scores below 30 on RSI have regularly coincided with market bottoms. And even when we haven’t seen a bounce, there wasn’t immediate follow through selling with the price ambling sideways before eventually dribbling lower.

Past performance is not indicative of future returns, and this time could easily be different. We’re only talking about a limited sample size, after all. But with two horizontal support levels located just below, the tendency to bounce creates an interesting trade setup.

China A50 futures gap lower in ugly open

Zooming in, you can see how ugly the price action has been, with futures not only gapping lower but doing so through the 200-day moving average, a level that’s often been respected including for periods earlier this year.

Long setup

Given support held at 11839 when tested earlier in the session, those contemplating longs could buy here with a stop just below the level for protection.

On the topside, the 200-day moving average would be the initial target. Just above, 11977, where futures bottomed earlier this week, is another possibility given the risk we may see traders attempt to close the gap created by the sharply lower open. But even then, the risk-reward does not screen as compelling. Realistically, to make the trade appealing, the target would have to be higher.

12054, where futures bottomed on Tuesday and Wednesday prior to the gap lower, would make it more palatable. Above, 12296 comes across as another possible target.

Depending on whether you take on trade and entry level at the time, you could also consider placing a stop below 11770 for protection, especially if you’re looking for one of the higher targets.

-- Written by David Scutt

Follow David on Twitter @scutty

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.