Time to calm down (2011-10-10 HSI analysis)

Last week was a choppy week. Hang Seng Index first plunged to as low as 16,170 on Tuesday. Then everything had changed after the public holiday on Wednesday. Good news from Europe led the global stock markets to undergo a huge rebound and HSI jumped and closed at 17,707.

Though it looked like too volatile to trade, the rebound after reaching ~16200 was not too hard to catch. It is the level supported by a medium-term upward trending line. Macao Gaming stocks rallied greatly, with over 30% jump in stock price in just two days (Thursday and Friday). Given their performance, I guess this week's focus might be on them as well.

One more extremely important issue. The last Policy Address by HKSAR Chief Executive Mr. Donald Tsang would be revealed on Wednesday. It is expected that he would talk more about property prices and policies, with a possibility that more flats are built for Home Ownership Scheme which could impact the property industry. So for those who are holding any these kinds of company would have to be prepared for any event risk on Wednesday.

Now let's get back to our regular HSI analysis.

Daily chart of HSI (finally):















I haven't been posting daily chart for two weeks because I could not get any clue from the previous charts. But this week it seems to be a bit clearer.

The orange Andrew's Pitchfork was the normal one. The index broke it in mid-September. The lower line became the resistant to HSI (which was shown in late September).

I have identified another Pitchfork, which is a short-term one, shown in purple. Hang Seng Index was following the upper channel and slid since September 2011.

After the rebound last week, the index is currently testing the upper line of the Pitchfork. The level represents a strong resistant line which HSI did not go beyond since September.

Other than the current pitchfork, there are two another big resistance forces at around 18,000, which is around 300 points from now.

The first one is of course the previous Pitchfork shown in orange. This is just the same case as that occurred in late September.

The second one is the fibonacci retracement. By using the high in late August and the low last week, we found that 18,000 is the 38.2% retracement level. This also resists the index.

So daily chart is telling us that HSI would need an extremely strong buying power in order to break out these resistant; otherwise, this week would be a bearish week.

Weekly chart of HSI:















The orange pitchfork is just the same as that one on daily chart, while the fibaonnci retracement is a different one.

The green upward trending line was able to support the index well last week, stopping HSI to slump below 16,000.

Using the low in Oct-2008 and the high in Oct-2011, I drew another retracement. We can see that ~16,200 is the 61.8% retracement. So actually there were two forces supporting the index last week. We have no surprise why the rebound was so strong then.

So the situation is getting a bit interesting now, or actually I should say not interesting from traders' views.

For the upside, the previous pitchfork with down-trend is resisting the index. For the downside, the medium-term up-trend green line is support the index. HSI is now in the middle, and both sides are pretty hard to break.

Still remember my post on VIX last Friday? I suggested that its time for VIX to take some rest and calm down. This also means that the volatility would drop. Stock markets either move gradually upwards or consolidate (it is always hard for the markets to move downwards slowly).

Considering also the VIX, I believe that HSI would start moving sideways, with the current range of 16200-17800. This range is definitely narrowing given the converging support and resistant. This also means the purple pitchfork on daily chart will collapse (which is not a surprise as its slope is too steep for a long-lasting trends).

So the coming two weeks would be a cool-down period after fluctuations in past few weeks. This is a good period for us to do more research and find out how most stocks are performing and whether the markets would end its bearish movement or not. And we can grab some time to find out any undervalued stocks.

Important Economic Data this week (2011-10-09)

11-Oct (Tuesday)
China New Yuan Loans
13:00 Bank of Japan Monthly Eocnomic Report
16:30 UK Industrial Production {Forecast: More negative}

12-Oct (Wednesday)
02:00 US Fed Releases Minutes of 20-Sept FOMC Meeting
16:30 UK Jobless Claims Change {Forecast: Increase from 20.3K to 24.0K}

13-Oct (Thursday)
07:50 Bank of Japan Publish Minutes of 6-7Sept Board Meeting
08:30 Australia Unemployment Rate {Forecast: Unchanged}
14:00 Germany Consumer Price Index {Forecast: Unchanged}
16:00 European Central Bank Publishes Oct. Monthly Report

14-Oct (Friday)
10:00 China consumer Price Index {Forecast: Slight drop}
17:00 Euro-Zone Consumer Price Index - Core {Forecast: Increase}
20:30 US Advance Retail Sales {Forecast: Increase to 0.5% from 0%}
21:55 US U. of Michigan Confidence {Forecast: Slight increase}

source: http://dailyfx.com

Findings on Volatility (2011-10-07 VIX analysis)

R.I.P. to Steve Jobs. Though I'm not Apple fans, he did help a lot in innovation.

So basically yesterday European Central Bank announced that they would introduce year-long loan again to let banks get enough cash. Some strategists even said that the biggest rally in S&P500 since 1998 in the last quarter in 2011.

Interesting enough, isn't it? Though I don't think the markets would surge crazily, I think the plunge will temporarily end here when HSI touched the medium-term support at around 16,100. Rebound is following and the index will probably test the resistant at 18,000 again. This is the first stage, if it passes, then then next resistant will be at around 19,700.

Today I am going to talk about volatility.

Daily chart of Volatility Index (.VIX):















The index has been moving in a range recently, as shown in the red on the above chart. This channel ranges from around 32-48.

But the channel is a downward trend channel, so both the support level and resistant level drop as time passes by.

In last few days, S&P moved around 1% every day, compared with more than 2-3% days ago, so the index dropped.

As suggested by the channel, the next support level is at around 30. Therefore, it is quite likely that VIX would drop to around 30 from the current level. This means that S&P500 won't suffer from great slumps at least in these few days.

Apart from this, I found an interesting pattern on weekly chart.

Weekly chart of Volatility Index (.VIX):















Basically, as mentioned before, the index could hardly surge above the level of around 50. The only time was due to sub-prime mortgage crisis in 2007-2008. VIX was up to almost 90.

However, VIX did try a few times to break this critical level. We can see that there were six trials in total including the two recent ones.

Interestingly, each time after two trials, the index would be quite likely to drop.

The first box represents the two trials in 1997 and 1998, after that the index remained at the trading range of 15-30 for almost 3 years.

The second box represents the two trials in 2001 and 2002, and after that the index slumped to the range of 9-15 for almost 5 years.

So this time we observe a double top again. Would it follow the historical fact? or would it spike and break 50?

Not having a breakout at 50 means that S&P500 would calm down and is not likely to plunge. It might even snowball to higher levels. So it also means that EU and US both get rid of the poor situations now and global stock markets would gradually rise.

A rebound followed by another bearish wave (2011-10-05 IT analysis)

Following the EU report on financial industries, the US finally ended its crazy plunges and S&P 500 Index closed at 1124, a jump of 2.25%.

Today's Hong Kong's public holiday, tomorrow it should jump, especially for banks, unless the US markets plummet today. It seems like the green line on weekly chart is still able to support the index. A rebound should follow.

Let's see an interesting stock.
















Above is the daily chart of I.T. (999.HK). And the Group is mainly engaged in retailing and trading of fashion wears and accessories. (from http://aastocks.com)

Back to the chart. The stock price is obviously moving in a bearish trend currently, with a pretty steep slope.

The red line near the bottom represents its medium up-trend line. Apparently, I.T. made a nice breakdown at the end of Sept 2011. I could hardly see a strong support trend-line other than this until 2.50.

Andrew's Pitchfork does work on this chart. Using the high-low-high in July and August, I drew the purple pitchfork. We can see the upper line of pitchfork resisted the price well.

The stock price gradually fell. After reaching the middle line on 26-Sept-2011 at around 4.20, the price bounced and immediately plummeted again.

If the whole market is going to rebound, the resistant for this rebound for the stock would be at 4.70, which is around 17% from now. This resistant is given by the Pitchfork.

Going back a bit, there was an wedge formed in May 2011 - July 2011, shown in orange. The stock attempted to break the upper level a few times but failed. Then the price just broke the lower line and headed to lower levels.

By using wedge breakout estimates, the next support level would be at around 2.10, following the previous level at 4.20 which did support the price once successfully.

Therefore, after the price has rebounded to around 4.60-4.70, I would expect another plunge to as low as 2.50, and then 2.10 if it drops further. It would be a good time to SHORT at 4.60-4.

Going to rebound? (2011-10-04 GBP/USD analysis)

Gosh, another 2.36% plunge for Dow Jones, intra-day loss was really horrible yesterday night 'cause the index was not doing too bad at open.















Above is the daily chart of GBP/USD. Should be too surprised seeing that recent bearish trend due to the concerns in Europe and the strength-gaining USD.

I think for medium-term traders, the green line represents an extremely important support level for sterling. Once this line breaks, GBP would be heading to perhaps the previous low in May 2010 which is around 1.423.

But please be aware of any false breakout as well such as that the two candlesticks on 22-sept-2011 and 23-sept-2011. Confirmation is always a critical step when determining any trend changes.

Apart from the trend line, I have also added a Pitchfork and a retracement.

The retracement is straight-forward. The pound reaches its 50% retracement level and the supportive force seems to be quite strong here. Next level would be 61.8% which is at around 1.520. These are important support levels.

Pitchfork looks beautiful on this chart too. The false breakout was coincidentally at the interception of the green line and the lower line of Pitchfork. That's the reason why the buying force was such strong that kept pushing the price back above the two lines, forming a false breakout.

Therefore, actually we can see that the supportive forces are quite strong currently. I don't think sterling would plunge easily and break all these levels. There should be some rebound following.

Extremely strong resistances are found at around 1.578, given by both the retracement and Pitchfork.

More on long-term (2011-10-03 HSI analysis)

Had a really busy week with lessons everyday and test on Friday about Fundamental Tools. School officially starts and I guess I would be even busier. But that's life for a MSc student.

Back to the market. Greece finally approved 6.6Billion Euros of austerity measures till 2012. But this might not necessarily be a good news to stimulate the markets 'cause it still depends on whether Greece would be aided.

Hang Seng Index (HSI) did drop slightly below 17,000 last week but was able to stay above this level, and closed slightly lower than the Open last week. In general, it only had a short body for last week's candlestick.

Weekly chart of HSI:















This week I have zoomed out a bit on the weekly chart, and would post a monthly chart analysis as well. Short-term movements are really hard to predict in such event-driven market.

Andrew's pitchfork as usual, as the index plunged below the fork, the lowest line changed its role as support to resistant, and successfully stopped HSI from surging higher at around 18,000.

This is not a good sign as it tells us that 18,000 becomes a strong resistant zone. It takes time for the index to recharge and break out.

Green line represents a medium-term support. We can see there will be support to the index at around 16,200.

Indeed, the two fibonacci retracements give support at around 16,150 and 15,670. We can expect a strong support at this zone.

HSI closing at 17592 last week means that there is still room for the index to slump. I expect it to drop to around 16,100.

Monthly chart of HSI:















Monthly chart is another good example of Technical Analysis at educational purpose. The chart shows the monthly candlestick of Hang Seng Index since 1993.

The retracement is the same one as that on weekly chart, suggesting a support at around 15,700.

The reason why I said this chart is good at educational purpose is because of the pitchfork. We can see that since 2003, HSI started to move upwards along the fork, and broke down in 2008 after Financial Crisis.

After that, the fork became resistant and resisted the index two times in 2009 - 2010. Together with the retracement, we can now understand the tops of the index.

So what's next? It seems like there is no supportive power until 23.6% retracement at around 15,700. And then there should be technical rebound.

The green line represents a very long term support. HSI has been above this line since 1994 and it shows a 17-year upward trend. This is the ultimate support, and I don't think break down would happen unless there are wars in Hong Kong.

Hope today's long-term analysis would give you a more general picture of HSI. I suggest if you are not watching the markets every minute, you should not do short-term trading these days. Such news-driven markets could easily reverse intraday trend and might make you loss quite a lot.

Important Economic Data this week (2011-10-01)

All times are +8GMT (i.e. Hong Kong Time).

3-Oct (Monday)
16:00 Euro-Zone Purchasing Manager Index {Forecast: Unchanged}
22:00 US ISM Manufacturing {Forecast: Slight drop}

4-Oct (Tuesday)
11:30 Reserve Bank of Australia Rate Decision {Forecast: Unchanged at 4.75%}
17:00 Euro-Zone Producer Price Index {Forecast: Slight drop}
22:00 US Fed Chairman Bernanke to Testify before JEC

5-Oct (Wednesday)
16:30 UK GDP {Forecast: Unchanged}
17:00 Euro-Zone Retail Sales {Forecast: Drop from -0.2% to -0.7%}

6-Oct (Thursday)
19:00 UK BOE Asset Purchase Target {Forecast: Unchanged}
19:00 UK BOE England Rate Decision {Forecast: Unchanged at 0.50%}
19:45 European Central Bank Rate Decision {Forecast: Unchanged at 1.50%}

7-Oct (Friday)
Bank of Japan Rate Decision
19:00 Canada Unemployment Rate {Forecast: Unchanged at 7.3%}
20:30 US Change in Non-farm Payroll
20:30 US Unemployment Rate {Forecast: Unchanged at 9.10%}

source: http://www.dailyfx.com