Another exciting week? (2011-12-12 HSI analysis)

Last week I predicted that Hang Seng Index would surge and break out because of the positive economic data revealed; however, obviously the bad news from Europe had a greater impact on the market.

Indeed, Europe's leaders agreed to boost the rescue fund which led to rockets in Europe and US markets last Friday. Today HSI probably follows this surge at opening, and we can do nothing regarding this already-known information.

For yet-to-be-known information, we will have to turn to technical analysis for hints.

Daily chart of Hang Seng Index (.HSI):















From daily chart, we can easily spot out an interesting phenomenon: the three Moving Averages converge and touch each other.

These three are 10-day, 20-day and 50-day respectively. When they are closed to each other, there will be big movements followed. We can confirm it by the similar situation in late July, during which the three MAs got closed to each other and the index plunged greatly.

This is indeed quite reasonable. When MAs get closed to each other, it means that the stock market has been moving quite flat, shares are well accumulated (either long or short positions) and it might be the right time for the rich guys to take actions.

Anyway, back to the chart, this week there might be some big movements. However, we are still uncertain whether it would be up or down.

From the chart, we can know that the bounds are 18150 and 18900. These are the first boundaries, if the volatility is going to boost, then these levels could not hold well.

Weekly chart of Hang Seng Index (.HSI):















Obviously the index was not able to break out the median line of the purple downwards trending Pitchfork last week. It stayed well within the lower area.

Therefore, the median line keeps on resisting the index, at around 19,000. This is somehow similar to the level suggested on daily chart. In addition to that, 19,700 is another short-term resistant too.

For the downside, an ultimate clear support is by the green line and the lower line of Pitchfork, at the area 16500-17000. The area seems to be too big, but it would be narrowing as time passes by as the two lines are converging.

Yet, these are levels we have to bear in mind.

Upside: 18900-19000, 19700
Downside: 18150, 16500-17000

Get prepared for another exciting week.