Hang Seng Index Chart Pattern - May 08, '09

In last week's analysis of the Hang Seng index chart pattern, I had made the following observation:-

"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."

Just when the technical indicators were beginning to turn negative suggesting a correction, the Hang Seng brushed off the bear challenge and spurted upwards above its 200 day EMA.

It was almost like one of the points in a recent clay court final between Nadal and Djokovich. In a 27 shot rally, Djokovich was controlling the point throughout and making Nadal scamper from one end to the other in the back court. Just when it looked like Djokovich would finally win the point, Nadal hit an outrageous viciously spinning forehand down-the-line  that clipped the outer edge of the line for a winner.

Let us look at the 3 months bar chart pattern of the Hang Seng index:-

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

Like the Sensex, the Hang Seng opened with an upward gap on Monday and closed above its 200 day EMA (for the first time since the global rally began). But there was no hesitation around the long-term average.

For the next four days it continued to move up and had 5 straight closes above the 200 day EMA. Both the 20 day and 50 day EMAs moved up with the short-term average poised to pierce through the long-term one.

The slow stochastic jumped up into the overbought zone. The MACD, which had slid below its signal line, moved above it and made a new high. The ROC, which had thrice reacted downwards from the 2000 level smartly moved above it and also made a new high. Only the RSI played spoil-sport by moving only marginally higher to make a lower high.

The longer term downtrend line (connecting the Oct '07 and May '08 tops) is still way above the current index level, while the Sensex had penetrated its long term downtrend line two weeks back.

Bottomline? The Hang Seng index chart pattern is still not quite confirming a trend change from a bear market to a bull market. Friday's rise on lower volumes is indicating tiredness. Investor's would do well to wait for a decent correction before entering.