We believe many market participants would not feel that the Hang Seng Index (HSI) is actually still trending lower since peaking November last year. This is because the index has been rebounding since sellers failed to push the market below the very critical support at the 19,423 pt-level in May this year. The HSI did dip below the 19,423 pt-level for a number of trading days, but the violation never proved convincing enough. The index did not fall sharply lower subsequently but only languished slightly below the 19,423 pt-level for a while. The subsequent rebound from there brought the index back to as high as 21,805 pts in 9 Aug 2010.
Near the 21,805 pt-level, the HSI met with the mid-term downtrend line which capped the market from rebounding further higher. As a result, the market has carved out another major low since the peak in November last year. It is obvious that the longer-term technical outlook of the HSI will remain bearish as long as it fails to crack above the mid-term downtrend line.
In the near future, we expect the index to be stuck between the two trend lines drawn in the above daily chart. One of these two lines is the horizontal support line at the 19,423 pt-level. This is a very critical support for the HSI, and a clean break below this level will cause significant damage to its daily chart. The market is also expected to fall sharply once this level is taken out.
From the current level, there is immediate resistance at the 21,297 pt-level, followed by the 21,806 pt-level. To the downside, we are eyeing an immediate support at the 20,007 pt-level, followed by the 19,777 pt-level and the 19,423 pt-level.