Hang Seng Technical Analysis

In this post on Hang Seng Technical Analysis, I discuss the key question on whether is the trend still bullish for the HSI or has it turned bearish.

Let’s start the analysis using the Hang Seng’s Long Term Monthly Chart to get the overview of the trend or the helicopter view.

We can learn a few key information from this chart. The overall trend is up on the longer term. However, the rise is choppy with a lot of spikes and overlapping waves.

A good example is the big rise in 2007. It was followed by a deep correction that overlapped the previous peaks of 1996 and 2000.

Hang Seng Index Long Term Chart

The rise from the lows of 2007 has also been in choppy fashion with a lot of big overlapping moves. Such overlapping moves are typical of corrective phases rather than strong motive waves.

Note also that the Hang Seng barely managed to scale the previous high made in 2007.

Let’s draw a trend line to capture the overall trend.

Hang Seng Chart – Long Term Trend Line

Next, let’s draw a parallel line and see if it fits. It fits quite nicely except for the peak of 2007.

Hang Seng Index – Long Term Trend Channel

Next, let’s look for major Support & Resistance lines.

There is a clear overhead resistance at around 32,000. It appears that the HSI has established a double top. It makes it a very strong overhead resistance because it spans about 10 years.

HSI Overhead Resistance

The next support and resistance zone is around 25,000 level. And this too is a significant level because it has been around since 2011 and has acted as both a resistance and support.

Hang Seng Index Support and Resistance Lines

The Hang Seng is currently testing this resistance line again. Let’s look at this in greater detail using the Weekly Chart.

The back test is highlighted with the green arrow in the below chart.

I’m a big fan of support & resistance and back testing is fundamental to this method. It gives clarity and confidence.

If the back test is successful, price is likely to head higher towards the next support resistance or trend line.

If it fails, price is likely to drop with a high likelihood of a deeper correction.

Based on this chart, if the back test is successful, HSI has a potential target of 27,000. If it fails, the target is 20,000 level.

A look at the daily chart shows signs that the Hang Seng has already failed the back test. The HSI has turned down strongly from the resistance line.

The confirmation will come if the brown trend line in the following chart is broken to the downside.

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Hang Seng Index (HSI) Weekly Elliott Wave Review 25 Feb 2012

There has been a very important development since my last review of HSI. Take a look at the below 5-Year Primary Elliott Wave Chart for HSI.

HSI 5-Year Primary Elliott Wave Chart 25 Feb 2012

Note the red arrow at the bottom right hand corner of the chart. It is pointing to the weekly MACD which has crossed above the zero line. Usually, this is a bullish move. But there are further information on this chart that we need to pay attention to. Each peak of the MACD has been bound by the amber line. This line has provided strong resistance for three times in major peaks of the market since Nov 2007. Thus, this amber line is a strong support / resistance line. The MACD is approaching this line once again. If it does break the line to the up side, that would be a very strong bullish indication for the HSI. We will know in a couple of weeks or so.

Here’s the updated Daily Elliott Wave Chart for HSI depicting the Primary Count. The HSI has surpassed the top of Minute 4 at 21060 and has been closing higher since then which is another bullish sign. It has also retraced slightly more than 61.8% of the previous down move. The daily MACD though is turning down. I have updated the chart by adding the contracting triangle lines same as in S&P 500.

HSI 1-Year Primary Elliott Wave Chart 25 Feb 2012

The Alternate Elliott Wave Count (1) has been updated with the recent moves. This is a valid and a strong alternate candidate.

HSI 5-Year Alternate (1) Elliott Wave Chart 25 Feb 2012

The Alternate Elliott Wave Count (2) and Alternate Elliott Wave Count (3) are both gaining traction as well with the recent developments in the HSI technicals.

HSI 5-Year Alternate (2) Elliott Wave Chart 25 Feb 2012

HSI 5-Year Alternate (3) Elliott Wave Chart 25 Feb 2012

 

Hang Seng Index (HSI) Weekly Review 19 Feb 2012

This is the Hang Seng Index (HSI) Weekly review. The Primary count that I have on the HSI is calling the move down since early 2011 as an impulsive move. This whole move is labelled as Intermediate (1) with Minor 4 underway. The target for wave 4 in an expanded third wave scenario is the level of wave four of the expanded third wave, which is 20975 in this case. Minor 4 has now surpassed that level and has even reached the bottom of the wave one of the expanded third wave. This does not breach any rules though and the wave count is still valid.

The 61.8% retracement of Minor 3 is at 21353 and the Minor 4 has surpassed that level too. The target for Minor 4 has been reached and last Friday’s action made an island bar. A down on Monday, would make a nice island top and indicate the early signs of reversal. It would indicate end of Minor 4 and beginning of Minor 5.

A move above 22392 would invalidate this count as that would cause the Minor 4 to overlap into the area of Minor 1.

HSI 1-Year Primary Elliott Wave Chart 19 Feb 2012

The daily MACD is flattening and is slightly turning downwards. But there is no major divergence between the recent peaks.

An interesting point I wanted to highlight is that the problems of credit crunch, housing market bust and debt issues are largely centred in the US and Europe. Surprisingly though, the US market has now retraced almost all of what it lost since 2 May 2011 whereas the HSI has only recovered 62%. It looks like the FED’s and ECB’s continuous easy money policy has helped greatly in the market recovery. The question is whether did the same policy also help in real value and wealth creation by promoting enterprise and production. We can only confirm a real recovery is in place when the effect takes place in real enterprise and production.