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Sunday, June 7, 2009

Hang Seng Index Chart Pattern - Jun 5, '09

Last week's analysis of the Hang Seng index chart pattern was concluded with some cautionary statements - maintain trailing stop losses and book partial profits.

The sudden up-tick in volumes in the previous week had made me a little wary. The Hang Seng index did close higher than the previous week - but consolidated sideways with three up days and two down days, on progressively diminishing volumes.

The 3 months bar chart pattern of the Hang Seng index clearly shows this consolidation:-

Hang Seng_Jun0509 

The 200 day EMA has started moving up and the 50 day EMA has just touched it. The medium-term average is poised to move above the longer-term one to provide the final confirmation of a bull market.

Some experts have been calling this a 'cyclical bull market' within a longer term bear market. Others opine that this is the beginning of a secular bull market. Whatever be the prognosis, the fact remains that the trend is bullish. We should always make friends with the trend.

The slow stochastic has remained in the overbought zone and is showing no inclination of moving down. The MACD is positive and above its signal line. The RSI has moved up while the Hang Seng moved sideways. But this positive divergence is counteracted by the ROC, which has moved down.

A friend who is a big shot in an investment bank in Singapore made an interesting comment. He said the Hang Seng index doesn't have a mind of its own. It watches what happens in China and India, and tries to follow suit. Point to ponder!

Bottomline? The rally looks like it wants to continue next week as well. Avoid fresh buying and keep taking profits, or, maintain strict stop-losses and enjoy the ride.

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