A month ago, we warned to watch the Hang Seng Index carefully because of the small rounded top around June and July – unless it rallied promptly from the nine-week moving average, we might be in trouble. And it did burst to a new high for this year. However, once again last week we saw signs of further instability, this time a powerful bearish engulfing candle with a spike against trend-line resistance taken from the record high in 2007. Volume was good but not as strong as at the lows last year, and therefore we shall pencil in a correction down to the 50 per cent retracement level towards trend-line support. This will not be a fatal move as the cloud system is still supportive.

Nicole Elliott is a technical analyst