Hang Seng Chart Pattern - Apr 17, 2009

It has been three weeks since I looked at the Hang Seng chart pattern on Mar 27, '09. What had I concluded then?

The index has penetrated both the 20 day EMA and the 50 day EMA from below, indicating bullishness. But it is still way below the 200 day EMA, which means it is still in a long term bear market. The double top above the 15000 level is likely to provide strong resistance.

Let us have a look at the current 6 months bar chart pattern of the Hang Seng to see what transpired:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

The index continued its upward rally along with the global markets, with the 20 day EMA crossing the 50 day EMA and both averages moving up with the Hang Seng - showing continued bullishness.

The slow stochastics, which had entered the overbought zone in the middle of Mar '09, happily stayed there while the MACD and ROC moved up. The RSI remained flat as the index went higher - a 'divergence' - but has turned up of late. Looks like it is 'all systems go' for the rally to continue.

But wait a minute. Please look at the chart pattern again. Find some thing interesting? See where the Hang Seng has halted - even if temporarily? Around the 15600 level - which defines the top of the rectangular sideways consolidation pattern of the past 6 months. This level was earlier touched by the index in Oct '08, Dec '08 and Jan '09.

It is also the level where the 200 day EMA is currently poised. This combination of resistance at previous tops plus resistance at the long-term 200 day EMA may prove a tough hurdle to cross.  The other thing to note is the volume. It increased in the second half of Mar '09 but has flattened off in Apr '09.

Bottomline? Investors should closely watch the chart pattern of Hang Seng next week. Crossing the 200 day EMA and staying above it for a few days may confirm a change of trend from bear market to bull market. But a reversal from the longer-term average would mean reverting to the sideways consolidation pattern for some more time.