Saturday, May 17, 2008

Chart review: HSBC Holdings

A friend of mine is a HSBC shareholder. He is interested in my interpretation of the chart. In his own interpretation, he drew a rising wedge with a resistant line at $136. I drew the same on my daily.



Weekly:

Trend - 50-SMA has just turned down after a long uptrend
Support/resistance - price might pin-ball between the 50- and 100- SMA; the 100-SMA might provide good resistance at the $137 ~ $138 level
Cycle indicator - we have a high possible cycle top (note the mini-divergence on %K in the direction of the trend) and we have already moved down

Momentum - MACD is still pointing up but has somewhat flattening out




Daily:

Trend - 50-SMA has turned sharply upwards; it has gone past its second retrace in the trend
Support/resistance - price is now sitting on Fib 38.2%
Cycle indicator - toppish; market maybe exhaling soon
Momentum - MACD stays above 0 but 30-day momentum is flipping over; Negative divergence between MACD and recent price tops


I think it is unlikely that the prices will go much higher from where it is in the near term. The thin volume and the divergence in momentum seems to suggest that. The cycle indicators on both timeframe also suggest that it will spend some time on the downside. Note that cycle indicators cannot predict the magnitude of the price movement to the downside. It simply says that the stock is "exhaling". In my opinion, the stock might consolidate sideways with a downward bias in the near term.

Note: I am a poor classical chartist so I cannot comment much about the "rising wedge" except that it is one of the most difficult chart patterns to recognize and trade. We do have a valid "rising wedge" accompanied by a declining volume. Classical Technical Analysis is highly subjective in nature and opens to lots of interpretation in my opinion. Every classical chartist will interpret the same chart slightly differently.

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