Real or false breakdown? (2011-12-19 HSI analysis)

Last week the support line could not support Hang Seng Index anymore and the index dropped below the line. This was not a good sign, but this break down is yet to be confirmed. We will have to see whether HSI would be able to get back above the line today.

This week will be a typical data-oriented week, with lots of rate decisions and GDP data coming out before the Christmas holiday.

Daily chart of Hang Seng Index (HSI):















As mentioned, the index dropped below the lower red support line last Thursday, and was trying to get back to the line on Friday.

So today's spotlight will be on whether the index could close well above the line. If so, the break down will be treated as a false movement, and that the index has high probability of breaking upwards. Resistance will be at 20,000.

One thing which is worth mentioning is that the volume increased when the index plunged below the line. This is a sign showing that the market is not as bearish as we think.

If the index finally closes below 18,500, the breakdown is basically confirmed. By using the flag to estimate the drop, next support will be at around 16,800, which is 23.6% level.

Weekly chart of HSI:















On weekly chart, there is no obvious support currently. Interestingly, the green line and the lower line of Pitchfork crosses at around 16,700, which is the level suggested on daily cahrt as well.

So we can expect a very strong support at this level. If breakdown is confirmed, we can expect a strong rebound when reaching 16,700-16,800.

For resistance, the moving averages and median line of Pitchfork are still acting very well. We can expect strong resistant force at around 19,000.