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Sunday, May 3, 2009

Hang Seng Index Chart Pattern - May 01, '09

Last week's Hang Seng index chart pattern discussion ended with the following statement:-

'The index is back in the sideways consolidation range where it is likely to meander for a while.'

Meander is exactly what the Hang Seng did. In fact, the chart pattern for the entire month of April '09 shows a sideways consolidation with a slight upward bias within a band of 14000 to 16000.

A look at the 6 months bar chart pattern of the Hang Seng index will confirm my earlier assertions that the rally may be ending sooner than later:-

Hang Seng_May0109

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

The 20 day and 50 day EMAs are both moving slowly upward. The 200 day EMA is flattening. The index is facing strong resistance at the long-term average but also getting supported by the short-term one. The volumes, which had shown a spurt in late Mar '09, have dropped somewhat.

The slow stochastics has slipped down from the overbought zone and is straddling the mid-point. Ditto for the ROC and RSI. The MACD is still above the zero line but is dropping and has fallen below the signal line.

The uptrend line connecting the daily bottoms since the Mar '09 low was broken 8 trading sessions back and the index has failed to attempt a meaningful 'pullback' to the uptrend line. The Hang Seng index and the technical indicators are saying: 'We are not out of the bear market yet.'

Compare the Hang Seng with the BSE Sensex index chart pattern discussed yesterday. In the 2 years weekly charts, the Hang Seng index is below the long-term downtrend line. It is also below its 200 day EMA. Whereas, the Sensex has broken above both these indicators - even if the break is not quite convincing yet.

Bottomline? I'm expecting - like everyone else who isn't convinced by the past 2 months' rally - a wave of selling in the near term. That will provide long-term investors with an entry point. Till then, don't be a bull or a bear - be patient, like an African python.

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