The iShares MSCI Hong Kong Index Fund ETF (EWH) has formed a Head and Shoulders top formation on its daily chart indicating that further downside may be likely. Even though the pattern may not be perfect, extended and higher right shoulder, recent price action gives it credence. It could be argued that the pattern is a double top on the weekly chart.

Regardless, two weeks ago EWH fell on increasing volume, crossed below the neckline of the Head and Shoulders, broke through the 100 period exponential moving average on the daily chart, closed below the 20ema on the weekly chart, and the short term moving averages have cross down through the longer term. 

Over the past week EWH has retraced back towards resistance of its moving averages on declining volume. Resistance has so far been found in the area of the 12ema and 100ema on the daily chart, and 20ema on the weekly chart. EWH has now formed a short term bearish wedge, assuming there is no further retracement to the upside on the current pullback, which is certainly possible. 

A move back down through the neckline, at approximately $18.68 signals further weakening with a move through $18.60 signaling a breakout of the Wedge. 

The measuring objective from the Head and Shoulders pattern indicates a possible move back to the 11 month base EWH broke out of back in September 2010. Fibonacci analysis of the trend measured from the July 2, 2010 low matches support of this base almost exactly. Regardless of whether EWH reaches this level it indicates the potential. 

The top of the basing period is at $16.89, while the 61.8 per cent Fibonacci retracement level is at $16.74, and the measuring objective of the Head and Shoulders pattern is at $16.76. This provides a zone of possible significant support from $16.89 to $16.74. (www.etf-portfolios.com)