The Hang Seng index chart pattern was showing the signs of a larger correction last week. Instead, the index used its 20 day EMA as a trampoline and tried to bounce up to a new high.
It made a high of 17611 on Wed. May 20, '09 that was slightly below the previous high of 17686 made on Mon. May 11, '09. Two days of down moves followed and the index dropped near its 20 day EMA once again.
This 'double top' formation is bearish - which is confirmed by the lower volume on May 20, '09. But the index has been getting support from its 20 day EMA since the middle of Mar '09 and another bounce up may be on the cards.
The 3 months bar chart pattern of the Hang Seng index will show the exciting tussle between the bulls and the bears:-
(Please right-click on the image; open it in a new tab or window for a better view.)
The 20 day EMA is now comfortably above the 200 day EMA but the 50 day EMA has still some climbing left. In the 2 years chart, the Hang Seng index is still below the long term down trend line drawn through the tops made in Nov '07 and May '08. (The BSE Sensex index chart pattern had pierced above its long term down trend line three weeks back.)
The slow stochastic has been moving in and out of the overbought zone. The MACD is a tad below its signal line. The RSI has moved down from the overbought zone and the ROC has dropped almost to the mid-point '0' line.
The technical indicators are all signalling a further correction. The lower volumes are confirming the slowing of the upward momentum. A deeper correction will provide a good entry point.
Bottomline? The Hang Seng index chart pattern may try another bounce up from the short term EMA. But this rally looks like it is on its last legs. Any bounce can be used for taking some profits off the table.
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