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Sunday, July 26, 2009

Hang Seng Index Chart Pattern - Jul 24, '09

When I last looked at the Hang Seng index chart pattern two weeks back, it was headed down and was definitely looking weak. The 50 day EMA had provided support right through the months of Apr, May and Jun '09. It came to the rescue of the index once again.

The subsequent sharp rally took the Hang Seng index above all three EMAs, which are moving up along with the index. The bull market not only survived a bear mauling but kicked back strongly.

The 6 months closing chart pattern of the Hang Seng index (in blue) has been compared with the BSE Sensex index (in red), so the levels are in percentages. The post-election jump is the major cause of the outperformance of the Indian index by about 20%. Otherwise, both indices have moved in tandem.

Hang Seng_Jul2409 

Note that the recent rally has taken the Hang Seng to a new high, whereas the BSE Sensex has not been able to follow suit. The new high was made on much lower volumes, which is not a good sign.

The technical indicators are supporting the up move. Both the RSI and MFI are above their 50% levels and moving up. But they have made lower tops - which are negative divergences. The MACD is well into the positive zone and much above its signal line, but has also made a lower top. Only the slow stochastic is truly reflecting bullishness and entered the overbought zone.

What next? The Hang Seng index made a top at 32000 in Oct '07. It made a bottom at 10700 one year later, for a total drop of 21300 points. The 38.2% Fibonacci retracement of the entire fall was at 18850 (= 21300x0.382 + 10700). That level proved a strong resistance till it was broken during last week's rally. It is interesting how the Fibonacci levels show up in chart patterns time and again.

The next target on the up-side should be the 50% Fibonacci retracement level of the entire fall, which is at 21350. Should the technical weakness due to lower volumes and negative divergences lead to another bear attack, the support should be provided by the earlier resistance level of 18850 and the 20 day EMA.

Bottomline? The Hang Seng index chart pattern shows that the bulls have the upper hand for now. The bears can regroup for a counter attack any time. Keep taking profits off the table.


Sujatha said...

Nowadays our market also becoming Hangseng...

Falling heavily and giving heavily..

Thanks for this excellent chart.. Yes, nowadays comparing with Nikki and Hangseng is important it seems..

Anonymous said...

Hello Sir,

I read a news about Federal Reserve Chairman Ben S. Bernanke, he said the central bank is “winding down” emergency measures aimed at curbing the financial crisis. we want to make sure that we don’t overstimulate the economy” and spur inflation, also he said that the Fed could quickly remove excess reserves when the time was appropriate.

do you think that this point will start the sevear correction in world equity market, just due to removal of liquidity

or what will be the effect on indian market ?

Subhankar said...

Thanks Sujatha and Titu for your comments.

As Warren Buffett mentioned, Bernanke knows what he is doing and it is the best under the current circumstances.

Without the dollar-printing stimulus, the US market and the big banks would have collapsed.

Now that there are signs of stabilisation in the global economy, a further stimulus may lead to inflation, which may stop growth.

Corrections are part and parcel of stock markets. But I'm not expecting a huge crash. May be a 20-25% correction for India.

Sujatha said...

oops... your reply is very much impressive...

Think u r doing your work with detachment..

It's great.. definitely who is applying their own thoughts in this field may face failures..u r so practical in your approach.. learning some fundamentals thro u...

Best regards

Subhankar said...

Glad you're learning some thing, Sujatha. Makes my effort worthwhile.

Detachment comes with age. As near and dear ones start departing one by one, you realise the futility of getting too attached to anything.