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Hang Seng Trades Down To Key Support

03/16/05 08:13:11 AM
by Arthur Hill

The Hang Seng is consolidating at support with the long-term uptrend hanging in the balance.

Security:   $HSI
Position:   Hold

A look at Figure 1 shows the Hang Seng index in a clear uptrend over the last several months. The index ran into resistance around 14350 twice in December 2004 and again in late February 2005. With the reaction low in January, it is possible to draw a trendline extending up from July, and this sets the bullish tone. As long as this trendline holds, the trend is up and has yet to be proven otherwise.

Support around 13700 is confirmed by the trendline, a key retracement and support from broken resistance. A basic tenet of technical analysis is that broken resistance turns into support. The index broke resistance around 13700 in late January and early February. The March decline carried the index back to broken resistance and this should now act as support. In addition, the decline to 13692 marks a 62% retracement of the prior advance. This further reinforces support around 13700.

Figure 1: Hang Seng index
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
With the index trading at key support, it is time to zero in on the short term and identify a potential catalyst. The Hang Seng consolidated after the decline from 14273 to 13692 and this consolidation looks like a small pennant. These are usually continuation patterns and the prior decline (14273 to 13692) favors a downside break. However, the larger uptrend holds greater sway. Either way, it is important to wait for a short-term signal. A move above the pennant high (13997) would get bulls moving and open the door to a new high. A move below the pennant low (13692) would signal a failure at key support and possibly a more significant trend change.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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Date: 03/16/05Rank: 4Comment: 

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