Monday, May 9, 2011

What's about the downside? (2011-05-09 HSI analysis)

Due to snowballing fears of US economy, investors were losing confidence on stock markets. After death of Bin Laden, people expected an increase in US Dollar; however, it seemed the effect was not as powerful as we anticipated.

Hong Kong stock market experienced a streak of lose after the 8th consecutive fall on last Friday, longest since SARS in 2003.

Bad news is that Hang Seng Index dropped below important support levels in both daily and weekly charts.

Daily chart of HSI:


The red line is a downtrend line, which changed from resistance to support in late March 2011. On last Wednesday, the index plunged below and broke the support level.

On the other hand, 10-day Simple Moving Average crossed 50-day SMA from above. It might indicate bearish, but Moving Averages are lagging indicators, this is not a very strong signal.

Trying to find out on which level the support lies, I used a fibonacci projection with previous peak and trough. HSI broke the 100% level, so the next one would be 161.8%, which is at around 22,650.

The red downtrend line acts as resistance, so we can expect a strong selling force at around 23,400.

Weekly chart of HSI:

The purple uptrend and red downtrend lines had been existing on this weekly chart for a long time. Last week, HSI broke the red downtrend line from above, and showed a bearish trend. Luckily, 50-day SMA supported the index and stopped its slump.

I drew another trend line in green. This probably provides strong support to the index next week.

Again by drawing a fibonacci projection, I tried to find a support level on weekly chart. This time I used the high and low levels when the index touched the purple uptrend line and dropped. Interestingly, the support level I found is 22670, which is almost the same with the level on daily chart.

Resistance is given by the red down-trend line, which is at around 23,300.

To conclude, there is no doubt that given the current economic and investing situation, 23300-23400 would be an extremely strong resistance to the index. For the downside, it really depends on the economic data next week such as the consumer confidence, whether al-Qaeda would do anything in revenge to US and the detailed plan to aid Greek's financial crisis.

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