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Sunday, August 16, 2009

Hang Seng Index Chart Pattern - Aug 14, '09

In the two weeks since we last looked at the Hang Seng index chart pattern, the bull rally hasn't made a lot of progress. The index managed a gain of 320 points from the closing level of 20,573.33 on July 31, '09 - a mere 1.5% gain.

The low volumes continue to remain a concern, and the momentum of the up move has definitely slowed. Two weeks ago, I had advised caution but observed that the technical indicators were supporting a continuation of the bull rally.

The 6 months closing chart pattern of the Hang Seng index is presenting a different picture this time around:-

Hang Seng_Aug1409

In the first two weeks in Aug '09, the Hang Seng opened twice above the 21000 level, and twice it crossed that level on an intra-day basis. But there was only one close above it on Aug 11, '09.

What was the cause of this resistance? No prizes for guessing correctly. The 21,300-21350 zone is the 50% retracement of the entire bear market fall from 31960 in Oct '07 to 10680 in Oct '08.

It is quite amazing that the Dow Jones index is hesitating near the 38.2% Fibonacci retracement level while the BSE Sensex has bounced down from the 61.8% Fibonacci retracement level. Those numbers are reflecting the state of the different economies.

India had a downturn, not a recession, and continues to have lower but positive GDP growth. Hong Kong is out of a recession with a year-on-year growth in GDP, and an expected lower contraction in this year's growth. The USA is still not out of the recession.

What are the technicals indicating? All three EMAs are still moving up together, and the index is above them. That means the bull rally is still intact.

The RSI and MFI are above their 50% levels, but both dropped after touching their overbought zones. The slow stochastic has just slipped below the overbought zone. The MACD is quite positive, but has moved below the signal line.

Bottomline? Two weeks ago, I had observed that unless the Hang Seng index chart pattern moves convincingly above 21350, the bull rally may stop. Investors should remain cautious and continue to book partial profits. This isn't the time to be adventurous.

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