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Another Breakout For The Hang Seng

06/22/07 09:09:34 AM
by Arthur Hill

The Hang Seng Index has been moving higher for five years, and this trend looks set to continue after another resistance breakout.

Security:   $HSI
Position:   Accumulate

On the daily chart (Figure 1), the Hang Seng Index ($HIS) formed an inverse head & shoulders and broke neckline resistance with a gap. The left shoulder formed in January–February, the head in March, and the right shoulder in April–May. Neckline resistance was around 21000 and the breakout signals a continuation of the uptrend. Head & shoulders patterns can be reversal or continuation patterns. This inverse head & shoulders pattern formed in an uptrend and was therefore a continuation pattern.

FIGURE 1: HANG SENG, DAILY. This index formed an inverse head & shoulders and broke neckline resistance with a gap.
Graphic provided by: MetaStock.
Based on traditional technical analysis, the upside target is around 23400. The distance from the head to the neckline is added to the breakout for a target. In this case, I added 2400 to the neckline breakout at 21000. Broken resistance turns into support and 21000 is the first level to watch for signs of weakness. The right shoulder is essentially one consolidation with support just above 20000. A move below the low of the right shoulder would totally negate the pattern.

FIGURE 2: HANG SENG, WEEKLY. This chart offers some perspective on the bull market.
Graphic provided by: MetaStock.
Figure 2 is a weekly chart that offers some perspective on this bull market. The index bottomed in May 2003 and embarked on a five-year advance. This move is entering its sixth year and a rising price channel is taking shape. The index is trading near the lower channel line and a move toward the upper channel line would carry the index well above the head & shoulders target.

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: 06/26/07Rank: 3Comment: 

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