Bearish view (2011-08-08 HSI analysis)

What a long time since we last saw Hang Seng Index plunge over 1,000 points. The strange thing for last Friday's incident was... there wasn't much bad news causing so. The raise in debt ceiling in US was even passed, and the stock markets just slumped. Europe and US markets dropped over 4% on Thursday and Asia markets followed on Friday.

S&P then downgraded US to AA+, and different parties carried various views on it. Buffet said US should get quadruple A but it was quite obvious that he was trying to calm investors down in order to maintain the stability of global stock markets.

OK let's get back to Hang Seng Index.

Daily chart of HSI:


Obviously, the candlestick on last Friday just broke all the short-term and medium-term support levels. There was a huge gap in between.

The index opened at 20939 and fell to as low as 20643. Finally, it rebounded and closed at 20946. An extremely long lower shadow was formed. The body of the candle was small too cause the open and close was almost the same. Therefore, we can treat it as a Doji.

With such a position and the previous black candlestick, this could possibly be a Morning star, signaling an end to the bearish trend and a start of bullish trend.

But this would depend on whether the candlestick today would be a white one or not. If so, it is a trend reversal pattern; otherwise, the bearish trend should continue.

Nevertheless, resistant level is at around 21,200, but this is not a very strong one. If HSI is going to fill the gap, it might stop at this level for a short while.

Weekly chart of HSI:


It looks clearer on weekly chart. I have been drawing the pitchfork for the past few weeks HSI analysis thread, and there is no doubt that the pitchfork does matter.

After HSI touched the upper line of fork, it slumped last week. Amazingly, it was then supported by the middle line of the fork.

Therefore, there should be some rebound at this point. Other than 21,200 shown on daily chart, the next one would be at 21,700, which is the 23.6% fibonacci level. This level has been doing well on supporting the index before, and now it would turn to resistant.

On the other hand, if HSI keeps on falling and breaking the middle line of pitchfork, it could reach 19,000. Another financial crisis would follow.

To be honest, I am not having an optimistic view. All the news we have now are bad ones. Countries in Europe and US itself are having problems repaying debts. For US, they are just delaying the time of default, no actions are done in regards to the decreasing ability to get revenue. Ultimately, they may need bail-out and its just a cycle. Once the bubble bursts, more than one countries would have to go default and markets will surely plunge hard. I'm not sure when this day would come, but to me, it seems like it will happen soon.