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Friday, January 22, 2010

Stock Index Chart Patterns - Hang Seng, Korea KOSPI - Jan 22, '09

Hang Seng index chart


The Hang Seng index chart pattern was trying to recover from a bear attack when I looked at it two weeks back. I had made the following comment about the continuation of the bull rally:-

'The high of 23100 made in Nov '09 remains the big barrier that the bulls need to cross before they can shake off the bears.'

The bulls managed to push the index up to a high of 22672 on Jan 11 '10 - which was higher than the Dec '09 high of 22594. But their buying power ran out of steam. The bears took control.

Both the 20 day and 50 day EMAs have turned down and the 20 day EMA has slipped below the medium-term moving average. At today's low of 20250, the stock came perilously close to the 200 day EMA.

Though the Hang Seng index ended the day nearly 500 points higher at 20726, a bearish pattern of lower tops and lower bottoms have formed. The lower volume on the up day on Jan 19 '10 and increasing volumes as the index headed further down are major concerns for the bulls.

The technical indicators are all looking bearish, which means that the correction can continue some more. The slow stochastic has just entered the oversold zone. In each of the past four months, the indicator had moved back up immediately without spending much time below the 20% level. The bulls will hope for a repeat performance.

The MACD is in negative territory and below the signal line. The ROC is well inside the negative zone. The RSI is just below the 50% level and headed down.

The bulls will hope that the 200 day EMA will provide support to the falling index. Should the index fall below the long-term moving average, expect support around 19100 and 17700 (previous tops).

KOSPI (Korea) index chart


My previous look at the KOSPI (Korea) index chart was five weeks back. The index had made a spirited recovery from a strong bear attack that took the index down close to its 200 day EMA.

The bulls didn't let go of the reins, as the KOSPI made a series of bullish higher tops and bottoms. Except for a brief dip in the middle of last week, the index has managed to stay on or above the 20 day EMA since Dec 2 '09. (Today's close of 1684 has made the index dip below the short-term moving average once again.)

Note how the slow stochastic has spent almost 7 weeks inside the overbought zone, except for the dip last week. The volumes have started to pick up and all three EMAs are moving up.

Bears need not lose hope. The MACD has remained pretty flat for three weeks while the index rose to make a high of 1723 on Jan 19 and 20, '10. That is the exact same level hit on Sep 23, '09. That makes a very good case for a bearish 'double-top' pattern.

Negative divergences are clearly visible in the ROC and RSI indicators - both of which are above their mid-points and moving sideways.

Bottomline? The Hang Seng index chart pattern shows that the bull rally is over for the time being. The KOSPI (Korea) index chart pattern shows the bulls are still in control, but things can change quickly if the FIIs continue with their selling spree. Book profits.

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