I can’t wait for next week to review Hang Seng Index (HSI) as there were many things happening around the financial globe. June 26 was a brutal day for Dow Jones as it fell almost 360 points in a single day and immediately in June 27 we see the effects on the opening of Asia financial markets. Does this event shock you? Are you holding on to long position on the day before Dow crashed? Actually in my trading calendar, I do mark down June 26-June 30 as a danger zone for potential sudden big market movement. Market outlook during this danger zone period will be erratic as market can rally up or plunge down by a big percentage. If we think that market timing is foolish or near to impossible, then I would say that we lacked the attitude of a student to learn from the market. It is true that a lot of people are still skeptical on some methodologies that some technical analysts are using.
I have said "…we should watch out as I believe this week and next will present to us a violent and volatile week with big moves that can be very profitable" and "we should be looking at continuation of the downtrend as the bear is strong" in my previous posts that this week and next are crucial as market can be violent and it happened right at the crucial date of June 26 and June 27. Enough said and now we will look at the weekly chart for Hang Seng Index even though it has not complete its course yet. Today will be the determining factor on how the chart will look like and this will affect the market reaction next week. Confirmation is vital in trading using technical analysis because markets often time test the limits at the support and resistance levels to see how much potential buyers and sellers are reacting at the crucial levels. Therefore the analysis here is subjected to today’s HSI performance at closing of the week. Watch for my market comment at the end of trading day for more information.
Previous support line will become resistance line once it is breached. That is the principle behind support and resistance levels and I will talk more about it in my series of "Technical Analysis Guide 101 - Getting Started". There are two major resistance lines in the chart above after being breached in the early of this week. The first one is the 61.8% Fibonacci retracement level from the corrective rally and the second one is the Gann line that was drawn back at August 1997. The 61.8% resistance line are not so much of concern to me as it can be a pretty weak resistance level but its presence had added strength to the Gann line. I am more concerned on the Gann line as three trading weeks are hovering at this level. It is a very strong resistance level and during this week we are seeing HSI trying to break above this level many times but failed. It is an extremely bearish sign and we could expect Hang Seng Index to crash soon to the 20,000 level or even more. Ok, happy making money shorting HSI.
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June 28th, 2008 at 11:01 pm
Hang Seng Index opened at 21,901 points and dropped to as low as 21,774 before closing at 22,042.35 downed by 413.32 (-1.84%). As mentioned above that the resistance line at 22,800 was strong and failure to break above this level after a couple of tries was a bearish sign. The next support will be at 20,500 level but I believe that this will be taken out also to confirm the lower low of a bearish trend. We just need to stay at the short side and see if the lowest point is taken out by the bear.