Hang Seng Index Chart Pattern - Apr 24, '09

During the previous discussion about the Hang Seng index chart pattern on Apr 17, '09, this is what I had asserted:-

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.

It was a tough hurdle indeed. One look at the 6 months bar chart pattern of the Hang Seng index will make it amply clear why I keep harping that successful stock market investing requires the ability to analyse the market both fundamentally and technically:-

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

Fundamental analysis would have correctly indicated that the 7 weeks long global market rally was not based on the underlying strength of the economies, but on the perception that things were bad but not getting worse. Some even saw the first signs of an economic turnaround.

The chart patterns that reflect the collective behaviour of different stock market participants indicated otherwise, and was able to guide that the rally may be fizzling out sooner than later.

The expected resistance at the 200 day EMA forced the index down to seek support at the 20 day EMA (which has stopped rising). The volumes have also dropped off.

The slow stochastics has turned down from the overbought zone. The MACD has flattened and is about to slip below its signal line. The ROC has turned down and reached the neutral level. The RSI is about to do the same.

Bottomline? The Hang Seng index chart pattern is indicating that the rally may be over. Investors should use the opportunity to book some profits or get rid of non-performing stocks. The index is back in the sideways consolidation range where it is likely to meander for a while.