Breakout time? (2011-05-16 HSI analysis)

Last week was an interesting week. News reported that many investors from China had liquidated their SHORT positions in HSI futures or changed from SHORT to LONG positions, causing HSI to have bounced.

However, analyzing the charts, I am still not convinced that the bearish trend has ended.

Daily chart of Hang Seng Index:


The index bounced greatly last Friday, forming a white candle with long lower shadow. However, the surge stopped at exactly the 10-day Simple Moving Average.

Besides the SMA, HSI is still below the red down-trend line. This line provides strong resistance which we can observe last Wednesday. This time the level is at around 23,300.

The fibonacci retracement using the high and low these two months again further shows a resistance force (at around 50%-level) to the index. But this is relatively weak.

For the downside, 23,000 level seems to have well supported the index last week. This level should still be working.

Weekly chart of HSI:


Last week's candle was almost a doji as the open and close were very close. The body beautifully lied between the purple down-trend line (resistant) and the 50-day SMA (support).

The low was also at the green up-trend line. This line has been supporting the index very well.

While the two lines have converged, it is time for the index to break. Volatility would increase this week.

It is hard to guess which side the index will move by looking at the charts solely. However, due to the fact that more rich investors (from China) are having bullish view on HSI, I would expect an upside breakout.