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Sunday, July 5, 2009

Hang Seng Index Chart Pattern - Jul 3, '09

Last week's discussion about the Hang Seng index chart pattern concluded with this comment:-

'Keep taking profits and wait for a deeper correction to re-enter.'

Not much of a correction happened last week. The index made a feeble attempt to clear the 19000 level - its third failure since the beginning of June '09 - and then fell back on its 20 day EMA for support.

The 6 months closing chart pattern of the Hang Seng index (in blue) has been compared with the Dow Jones (DJIA) index (in red), so percentage values have been used instead of absolute values:-

Hang Seng_Jul0309

Notice how the two indices tracked each other to the Mar '09 bottom. The subsequent rally took the Hang Seng up by 50%, but the Dow rose only half of that.

Both indices have made lower tops before moving down wards. But the Hang Seng remains in a bull market, whereas the Dow never even entered it and is back in a firm bear grip.

The technical indicators are mirroring the weakness in the Hang Seng. The MFI, RSI and slow stochastic have all slipped below the 50% level. The MACD is positive but below its signal line. Volumes are petering off.

Bottomline? The Hang Seng index chart pattern may head down some more. Watch out for supports from the 20 day and 50 day EMAs. Bears may take control if the second support breaks. 

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