December 1, 2013 in Hang Seng Index
Hang Seng Index Chart Technical Analysis – 01 Dec 2013
This is a long term Hang Seng Index Chart Technical Analysis going back to Nov 2007 where it touched the all time high at 31958. The price then came down rapidly and by Nov 2008, it had come down by 66% to close at 10676.
The Primary Elliott Wave Count
The price break down is labeled as primary wave [W] in the below weekly Hang Seng Index chart. What followed next was a stunning recovery back to 24988 by Nov 2010. The whole price action of the recovery is best counted as a complex combination of a zig-zag – flat – expanding diagonal. The primary count labels this recovery as primary wave [X] which is still in progress.
This is the preferred count as there are no ambiguous waves and all the waves fit well in the overall picture. The wave structure is also confirmed by the MACD.
In this count, the primary wave [Y] is anticipated next with a final target just below the wave [W] at around 10,000 points.
The Bullish Alternate Elliott Wave Count
The bullish alternate count labels the corrective wave as ended in Nov 2008 and that the recovery to Nov 2010 was the first bullish wave to the upside. This count is also valid and carries equal weight as the waves fit well in this count as well. The MACD too supports this wave count.
This is a bullish count as the current wave, in the form of an expanding diagonal, is labeled as sub wave 1 of a much larger wave 3. In this count, Hang Seng Index is expected to correct to around 18,000 points before embarking on an even more stronger wave to the upside.
The Expanding Diagonal
The expanding diagonal is prominent in both the wave counts presented above. As you know, expanding diagonals such as this takes place as either waves 1 or 5 in impulsive moves or waves A or C in a zig-zag. Basically, it is either at the beginning of a new wave or at the end of a wave.
As a rule, wave 5 of an expanding diagonal must travel beyond the end of wave 3. Wave 3 ended at 23,944 and so the current wave 5 must travel beyond that level. Also, as a guideline, wave 5 is likely to end before reaching the trend line that connects end of waves 1 and 3. This gives a target range of between 23945 and 25900.
Although it appears to be a big range of around 2000 points, but it is not uncommon to see the Hang Seng Index move at these rate in a couple of weeks.
The Elliott wave guideline also states that expanding diagonals will retrace almost all of its gain. It started at 16,170 and it could very well approach this level again.
Both the primary and alternate counts are pointing to the same expanding diagonal and it is likely for the Hang Seng to move up in the near term to these target levels. Thereafter, a major corrective wave is expected.