Hang Seng Warning Signs

Hang Seng Index broke its 50 day moving average support line this week, moving the index into “Warning” phase.

The index appears to be forming a top that looks like a head and shoulders pattern top. The neckline for this pattern is at 23,000 which serve as support level. In the event that this support cannot hold the selling pressure, we are looking at a minimum downside target of 21,000.

More than US$3 billion worth of proposed IPOs in Hong Kong were deferred. This signals that the equity market may have peaked for the year.

The warning sign for further weakness has appeared and traders need to listen to the market in order to avoid being burnt by the down swing.

Hang Seng Index

Hong Kong stock market has been on a run since hitting its low on March 09. The phase chart turned “Bullish” at the end of May 09 and has been maintaining its bullish stance since then except for a dip to “Warning” phase on 13 July 09. That dip proved to be a buying opportunity.

The market has stayed in “Bullish” phase for 50 days now and it looks set to continue. However, investors who are looking to add new long positions may be better off waiting for a test of the 50 days moving average before entering. As in all market developments, this market will not move up in a straight line.

Hong Kong Market

The Bear trend continues for the Hong Kong market. The Hang Seng Index is currently below its 50 day and 200 day moving average.

There is no end in sight for the world stock market. The number of countries slipping into recession is slowly increasing with Japan being the latest victim.

The Hang Seng Index slipped into Bear trend since 26 May 08. We are 120 trading days into the current down turn.

Hong Kong Market

The bailout package was finally approved by the US Congress on Friday. But it did not bring relief to the stock market.

The market sold down on the news and Dow closed down 157 points on Friday. There are still lots of fear in the market as indicated by CBOE Volatility Index. The market has moved from uncertainty of whether the bailout package will be approved to whether the bailout package can relieve the pain investors are experiencing.

The turmoil in the US market has caused pain to Hong Kong market as well. The phase chart is still showing a bearish bias.


The Hang Seng Index moved into Bearish mode on 26 May 08 and has stayed in Bearish phase for 90 trading days. It pays to trade with the trend.

Hang Seng Update

The Hang Seng Index broke out of its 200 day moving average on 23 Apr 08. The index is currently in "Accumulation" phase.






The chart is showing more strength for Hong Kong then Shanghai. The Shanghai Composite Index is still in "Bearish" mode. If you are keen to invest in the China story, it may be better to park your cash in Hong Kong. In terms of valuation, H-shares listed in Hong Kong are more attractive than the A-shares listed in China.


Currently the 300 member CSI 300 is still valued at 22 times earnings estimates for this year whereas Hang Seng China Enterprise Index is trading at 16 times earnings estimates.

Hang Seng Update

Hong Kong Hang Seng Index closed at 24258.96. An up move of 380 points.

The phase chart is showing that the index is still in "Recovery" mode. It has stayed in this mode for 12 trading days now. The index stayed in "Bear" mode from 6 Mar 08 to 1 Apr 08, a total of 18 trading days. That was relatively short compared to Singapore STI, Japan Nikkei 225, Dow etc. Hong Kong has always been tied to the China growth story which may explain why it is able to bounce up from the "Bear" phase so quickly.

For now the index is trapped between the 50 day and 200 day moving average. Should be able to start buying if it can clear the 200 day moving average.

Hang Seng Updates

Hang Seng Index has recovered from its low of 20,572 and is now at 24,311. About 4000 points move in 3 weeks.

It is now above its 50 day moving average and is in "Recovery" phase since 2 Apr 08. It stayed in "Bearish" phase for about 1 month and if it can take out the 200 day moving average then we will be in "Accumulation" phase.

US is showing some strength recently even with bad news being announced. Hope this show of strength will spread to Hong Kong and the rest of Asia.

Hang Seng Index Phase Analysis

Date	Close	Phase	50 DMA	200 DMA
1/2/2008	27560.51953	-1	28496.13086	24070.37695
1/3/2008	26887.2793	-1	28466.40234	24108.02734
1/4/2008	27519.68945	-1	28429.25781	24148.04492
1/7/2008	27179.49023	-1	28386.17773	24185.49219
1/8/2008	27112.90039	-1	28331.34766	24222.5957
1/9/2008	27615.84961	-1	28275.56055	24261.83984
1/10/2008	27230.85938	-1	28188.43945	24299.46094
1/11/2008	26867.00977	-1	28093.01563	24336.02734
1/14/2008	26468.13086	-1	27995.32227	24369.25781
1/15/2008	25837.7793	-1	27882.22266	24399.43945
1/16/2008	24450.84961	-1	27761.86914	24422.64844
1/17/2008	25114.98047	-1	27685.32227	24448.21094
1/18/2008	25201.86914	-1	27600.59961	24473.17188
1/21/2008	23818.85938	-2	27482.79688	24490.52734
1/22/2008	21757.63086	-2	27342.74414	24497.07031
1/23/2008	24090.16992	-2	27248.88281	24515.61914
1/24/2008	23539.26953	-2	27166.35156	24531.61523
1/25/2008	25122.36914	-1	27112.73242	24553.4375
1/28/2008	24053.60938	-2	27010.48438	24569.75977
1/29/2008	24291.80078	-2	26921.29492	24587.33594
1/30/2008	23653.68945	-2	26842.08203	24604.10156
1/31/2008	23455.74023	-2	26761.99219	24618.55078
2/1/2008	24123.58008	-2	26689.03906	24636.38281
2/4/2008	25032.08008	-1	26657.31836	24658.67773
2/5/2008	24808.69922	-1	26633.39258	24680.03711
2/6/2008	23469.46094	-2	26571.95703	24694.05078
2/11/2008	22616.10938	-2	26471.74805	24704.49805
2/12/2008	22921.66992	-2	26385.97656	24717.50781
2/13/2008	23169.55078	-2	26301.94531	24731.76172
2/14/2008	24021.67969	-2	26212.72656	24749.92578
2/15/2008	24148.42969	-2	26122.82422	24767.26172
2/19/2008	24123.16992	-2	26032.11914	24783.67188
2/20/2008	23590.58008	-2	25926.3418	24797.14453
2/21/2008	23623	-2	25811.89258	24811.72656
2/22/2008	23305.03906	-2	25686.81836	24824.02734
2/25/2008	23269.14063	-2	25575.34961	24836.63477
2/26/2008	23714.75	-2	25479.62305	24852.86914
2/27/2008	24483.83984	-2	25384.75977	24870.39453
2/28/2008	24591.68945	-2	25306.17578	24889.00977
2/29/2008	24331.66992	-2	25237.91406	24905.98242
3/3/2008	23584.9707	-2	25158.3418	24918.93555
3/4/2008	23119.86914	-2	25088.80664	24930.00977
3/5/2008	23114.33984	-2	25016.4375	24940.94336
3/6/2008	23342.73047	-3	24942.70703	24953.4375
3/7/2008	22501.33008	-3	24852.39063	24961.95313

After struggling since Dec 2007, the Hang Seng Index finally broke into "Bear" phase on Thurs. The last time the index hit the "Bear" phase was in May 2004. That phase lasted for approximately 3 months with the index moving into "Accumulation" phase in Aug 2004.

Most investors doesn't like the "Bear" word but charts never lie. The market is telling us that the "Bear" is here to stay. If you think history will repeat itself, then you are looking at Jun 2008 for a recovery.

Trade with care.