In the medium-term, am looking for HSI to stay in range (no new rally highs), due to a correlation factor with US indices. I will explain this better in the next few posts.

Meanwhile, SSEC is testing downtrendline resistance, after successfully bouncing above 2700. Will be posting an update within the next few days.

NEW YEAR QUESTION: Why did we bounce on the HSI?

While the fundamental folks are busy coming up with "explanations" for the recent bounce (Chinese factory numbers, commodity prices, ben bernanke's haircut, solar flares, etc etc), here's the real reason for the bounce. Have a look at the weekly HSI chart:


Price simply hit the Uptrendline! Watch that line my friends ;)

The HSI has given up on 22600 after a bit of a struggle. Note the volume spike on the last decline. As the hourly is oversold - and we're at the neckline -, a short-term bounce is possible here. A break below the neckline on higher volume, will add strength to the H&S picture with an eventual target around below 21000.


The STI seems to be holding up better, and has not yet reached the neckline. Declining volumes are not high either. However, should this change, we're looking at an eventual target around 2900.

A break above the shoulder line will negate these scenarios. Remember, H&S patterns need not always work out. Weigh the probabilities, and place your stops accordingly.

With today's 600-point decline to the 22800 level, HSI has completed what-looks-like a 5-wave decline, or in 'Elliott speak', an Impulsive Decline. It has now reached the most recent support area, and thus a likely point for a Corrective Rebound towards 23600-23800 level, which might materialise in a 3-wave overlapping format. Feel free to browse the Elliott Wave tutorial under 'Education & Resources' if the terms intrigue you. Here's the daily chart:


Head & Shoulders

If the above is indeed a 5-wave decline, principles of Elliott Wave Theory dictate that some form of corrective upward action is due, before another decline to new rally lows. Classical technical analysts might identify this as a potential Head & Shoulders pattern. It's still early days though. A break above 23800, or an immediate break below 22800 will make this less likely.

Other Asian Markets

Other Asian markets (such as the STI) seem to be executing similar patterns too. The SSEC's bullish medium-term picture is in danger of a truncation, after the impressive runup and the deeper-than-expected decline. It might be prudent to take profits on the impending rebound.

All the best!

Last post on the HSI suggested 23000 as the first stop, in this medium-term bullish breakout. We're there now, and also at the top of the channel as shown. Expect a back-test of the breakout here, or at least a sideways consolidation over the next few weeks, before any further upside. A sustained break above 23000 right now might turn it into a strong support level instead.