Hang Seng

SELL 22,392

TARGET 18,950

STOP LOSS 23,500

Last week’s weakness in the Hang Seng saw the index move one step closer to completing a bearish double-top pattern on the daily close chart. My 18,950 target price suggests 15.4% downside from the present 22,392.

The Hang now looks intent on testing support from the bull trend line that has been defining the extent of down moves since the sharp spike low to 16,250 printed in October 2011. This support line is currently passing up through 21,545 and, if tested, would confirm the bearish double-top pattern which in turn would point to a further decline below 19,000.

A move below 19,000 would not only see the 61.8% retracement of the rise from 16,250 severely pressured but also achieve a test of a level which has influenced since June 2009. If the bears are not then satisfied, the focus could fall on the corresponding 78.6% level at 17,870, which itself sits near to further previous support around 18,000.

Congestion around 18,000 would be the last credible barrier to a full retracement back to last June’s 18,185 low. The bulls now desperately need to see the index stabilise off 21,545 and will not be confident unless or until the market is once more north of 24,000, a seemingly vain hope at present.

It is often wise to run with winners and readers will recall this is my second short call on the Hang Seng this year. My initial sell at 23,721 (see Chartist, Shares, 7 Feb) generated an 8.6% return for followers when the index smashed down through my 21,680 target in mid April.

Punch Taverns (PUB)

BUY 13.5p

TARGET 33p

STOP LOSS 10.5p

A near doubling in the share price of public house estates company Punch Taverns (PUB) since my initial ‘buy’ call (see Chartist, Shares 27 Dec ‘12) may prompt some to consider taking profits. But I reiterate my positive stance and increase my target from 20p to 33p offering further upside of 144%.

The gains to date remain small in contrast to the long decline undergone by the £88 million cap since May 2007 when it peaked at 277p. Even in relation to the 33p high that the company posted in June 2009 it remains way shy of the derived 38.2% retracement. A test of that level would necessitate the firm hitting 16p.

Yet the price action seen over the last 12 months now appears to have traced out the second half of a large inverted head and shoulders bottom pattern. The recent strength has broken above that formation’s neckline and so appears to favour further appreciation toward the 50% retracement of the fall from 33p, sited at 19p.

A rise to 19p would also see the shares retest their coincident 2010 high. The corresponding 61.8% level at 22.5p and the 78.6% level that coincides with the September 2009 high at 28p would then be the only chart features standing in the way of a full recovery to 33p.

Given the long term technical significance of this price level, any test of 33p may prove to mark a medium-term high for the shares. Punch still has a very long way to travel if it is to be fully rehabilitated. So far a brave approach has been rewarded and if there has been a degree of accumulation in the shares over the last two years then the groundwork could well be in place for a sustained up trend to develop.

Only a slip back below 11p would now give cause to question my long call.