Hong Kong’s Hang Seng Index has broken two significant support features, suggesting a continuation of its downtrend, with a downside target near 25,200.
The Hang Seng has the appearance of a “head and shoulders” pattern, but that isn’t valid.
The right shoulder of the pattern is created by just two days of activity, the reversal is too small and too brief to be considered as a left shoulder development.
The first significant support feature to be broken is the historical support resistance level near 28,000. which is the upper edge of a trading band projection and the lower edge of the trading is the current downside target level.
The price fall below 28,000 was not a clear fall as there was consolidation around this level, and the potential for a rally rebound to develop.
However, the fall below the second support feature has confirmed the downtrend, while the second support feature is the uptrend line that is projected from the anchor points in February, July and December of 2016.
This is a long projection of the trend line, but it can at times provide a future support level, as the current move is a fall below the line, followed by a small rebound and retest of the line as a resistance level.
The second retreat from the line confirms the continuation of the downtrend.
It is significant that the value of the trend line matches the value of the support level and that increases the significance of the fall below the two features.
The downside target is set using the width of the trading bands, the 25,200 level has acted as a strong resistance level in 2014, 2015 and in 2017.
Surely traders will watch for consolidation to develop near the 25,200 level and they will cover shorts near 25,200.
Anything above resistance near 28,000 shows consolidation near that level, but it is not a signal for a new rally uptrend.