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Friday, September 4, 2009

Stock Index Chart Patterns - Shanghai Composite, Hang Seng, Korea KOSPI - Sep 4, '09

Shanghai Composite index chart

The technical indicators were showing weakness in last week's discussion of the Shanghai Composite index chart pattern, and some more consolidation was expected.

This week, we will have a look at the 3 months bar chart pattern of the Shanghai Composite index:-

ShanghaiComp_Sep409

A big fall on Mon Aug 31, '09 took the index down to the 200 day EMA. The long term average provided solid support the next day, and by the end of the week, the index had jumped up towards its falling 20 day EMA.

The bull market remains in tact technically as long as the Shanghai Composite remains above its 200 day EMA. But a bearish cross of the 20 day EMA below the downward sloping 50 day EMA is hinting towards some more correction.

The RSI is barely above the oversold zone. The slow stochastic is trying to slip out of its oversold zone. The ROC has moved up, but is still in negative territory. The MACD has stopped falling, but remains negative and below its signal line.

Note how the negative divergence in the RSI in early Aug '09 and the bearish cross of the %K line below the %D of the slow stochastic warned about the big correction of about 22% in the index so far.

Hang Seng index chart

Last week's chart pattern of the Hang Seng index was looking more bullish than the Shanghai Composite, but I had observed that it was wanting to correct some more.

Hang Seng_Sep409

The index dropped below its 20 day EMA and went down to seek support from the 50 day EMA. Today's (Fri Sep 4, '09) sharp 557 point rise has brought it back above the 20 day EMA to a higher weekly close. The bull market seems to have survived the bear attack, for now.

The technical indicators are not providing much confidence. The RSI has been falling steadily and is below the 50% level. The slow stochastic also had a steady fall and has entered the oversold region. The ROC continues to be in negative territory, while the MACD has also become negative.

I'm afraid the 'A' shares are going to pull down the 'H' shares soon.

KOSPI (Korea) index chart

A little more than a month back, I had made the following observation about the KOSPI (Korea) chart pattern:

'The bulls seem to have things pretty much under control. The KOSPI (Korea) index chart pattern has gained less than the Shanghai Composite index or the BSE Sensex index since the rally began in Mar '09. That tells me that some more upside is possible.'

Kospi_Sep409

The 3 months bar chart pattern of the KOSPI index shows a slow and steady rise, with a gain of a little over 3% (from 1557 on July 31 to 1609 on Sep 4, '09).

All the three EMAs are moving up along with the index. The 20 day EMA has provided rock-solid support and the bull market seems oblivious to the bear attack on its Chinese cousins.

All is not hunky-dory, however. There are negative divergences in the RSI and ROC. The MACD, though positive, has remained below its signal line. Only the slow stochastic is ensconced in the overbought zone.

Bottomline? The stock index chart pattern of the Shanghai Composite index is definitely under a bear attack, which it is trying to fend off. The Hang Seng index withstood the attack last week, but for how long can it hold the bears off? Only the KOSPI index shows that the bulls are still in control. Will the bears now switch their attention towards it? The possibility can't be ruled out.

2 comments:

Venkatesh said...

Hi Subhankar,

Did not understand this statement "Note how the negative divergence in the RSI in early Aug '09 and the bearish cross of the %K line below the %D of the slow stochastic warned about the big correction of about 22% in the index so far". I saw in BSE Sensex and there were many crosses in the past 1 year. What classifies as a "bearish cross" and warns of an impending correction.

Venkat

Subhankar said...

Good question, Venkat.

Any time that the %K line drops below the %D, it is bearish. When this happens near the overbought zone, it is an 'exit' indication. When the slow stochastic has already spent several weeks in the overbought zone, and the market has made a new high, then the consequences are more serious.

Supported by the simultaneous negative divergence in the RSI, it becomes a strong 'sell' signal.

The confluence of negative signals warns of an impending crash. (Note the early warning signals a few days before the actual crash.)