Sid’s Technical Take on the Long-Term Expectations for the Hang Seng Index ( HSIX / HKHI )

With U.S. stocks in nose-bleed territory, many money managers are smartly on the lookout for investment alternatives.  The Hang Seng appears to be a decent intermediate-term option in my opinion.  By combining Hurst Cycle Analysis and Elliott Wave, I’ve developed the roadmap below.

HangSeng weekly 9-1-14

Since the October 2011 (Burgundy B) low, which, by the way, was the US stock market low since Y2K when priced in Gold, the Hang Seng Index has been moving to the upside, but in overlapping fashion.  Both the upside and downside waves have been built in “threes”.  Because Hurst cycle analysis (using Sentient Trader software) isn’t expecting a crest of the 42.4-week cycle until around late November of this year, the Hang Seng looks like a decent bet for upside continuation until then.  My Elliott Wave interpretation for the Hang Seng is therefore that of an ending contracting diagonal, which, if correct, will have the Hang Seng rallying from now until late November, reaching a temporary, black wave 3 top at about 26842, where blue wave C will equal blue wave A times 1.382.

At that point though, watch out for a quick drop (in 3 waves) during late Q4-2014, and Q1-2015 to just about 23750.  That should create another nice buying opportunity, as the 5th wave of the ending diagonal would need a final 3-wave rally lasting all the way into early-to-mid 2016, with a final target of 30145, where primary wave C (burgundy) will equal the length of primary wave A.  Notice that the 30145 target would allow the Hang Seng to retrace the 2008 crash by slightly more than 90%, a requirement of wave B of a “flat”.

Then, (post mid-2016), if this interpretation is correct, the Hang Seng should essentially crash, as ending diagonals are typically deeply and quickly retraced.