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Ride this HSI counter trend wave IF / WHEN it appears

Consider short term HSI long until Dec

Gungho traders can consider a Hang Seng Index short term long trade when a trade setup appears. There are many strong reasons to do so. Remember to read my final closing at the end of this blog. *Very important*

For now, consider these facts:

  1. Hang Seng Index big picture up trend is probably over. This is characterised by the big failed break on top due to excitement during HK-Shanghai Connect and the subsequent burst of bubble.
  2. At the bottom, HSI printed a lower 52-week low that penetrated 2014 and created a bearish expansion. This terminates the rosy up trend since Subprime Crisis.

    HSI monthly chart

    HSI monthly chart

  3. HSI may not fall immediately but is likely to be much weaker in 2016.
  4. On the other hand, we know that very often a failed break is followed by retest of old resistance and that means the green zone might be re-visited (pullback). That is the premise of a short term long trade because there is still space between here and there.
  5. We also know that China is doing everything to prop up the stock market which extends to Hong Kong as well. There are simply few major drivers that will cause stock markets to burst in November. Even the Paris Attack did not do it (it did lead to one of the biggest single-day rally in the CAC40 for year 2015).
  6. In fact the major (IF ONLY) driver is the December 2015 FOMC meeting where Yellen will Yes/No raise rates.

 

What kinds of setup are we looking for

  1. Some elements of a bullish setup has already fallen into place.
  2. October bullish expansion has already terminated June – September down trend. This sets up for a reversal.
  3. After 2 week’s price action, we can also see 1-2-3 available with potential support at point 2 which is also September high.
  4. Question is whether you believe yesterday low is point 4, and if 2 (green zone) is going to be retested and if that test will pass.
  5. When all falls into place (one more piece to be discussed below), natural targets are likely to be October high, followed by ‘3 YH’, then ‘2 YH’.

    Bullish expansion in October terminates previous down

    Bullish expansion in October terminates previous down

  6. This is not a new theme, I have already written about this before.

 

One more hurdle to clear

  1. Eventually, HSI must clear this big green zone to succeed.
  2. Clearing this zone let’s short term bulls take charge with short term trend defined by the equidistant channel in black.
HSI daily chart showing bear flag

HSI daily chart showing bear flag

 

My final message

This kind of trade is for gungho, experienced traders. It is meant for people who can wear two hats i.e. HSI can exist in a state of down trend and yet there are short term up flows. Yes year – year is down. But month -month is up. Therefore there can be a trend within trend.

It means that we acknowledge that for example in the daily chart there is a bear flag, and yet some times we bet against the bear flag by betting it will not break down and therefore there is an opportunity to go long inside the flag.

The timing on this one is not ready yet. At the moment it can go both ways. I write this so that should a bullish setup as described here appears, some of you might be able to recognise it. Good luck!

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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One thought on “Ride this HSI counter trend wave IF / WHEN it appears”

  1. Joo Guan LIM says:

    Nice analysis. Jump in with my demo account and win 55 bucks. HaHaHa.

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