Friday, September 25, 2009

Stock Index Chart Patterns - Shanghai Composite, Hang Seng, Singapore Straits Times - Sep 25, '09

Shanghai Composite index chart

The 'reversal day' pattern on the chart of the Shanghai Composite index last Friday (Sep 18 '09) led to another bout of correction that took the index below both its 20 day and 50 day EMAs, and formed a lower top.

The 3 months bar chart pattern of the Shanghai Composite index shows that the bears are regaining control:-


The 20 day EMA is turning down below the 50 day EMA, confirming the bearishness. All eyes should be on the 200 day EMA, which provided support at the beginning of the month. If the index goes below the long-term average, the bull market may come to an end.

The technical indicators have deteriorated. The MACD is now touching the signal line in the negative zone. The ROC has entered negative region. The slow stochastic is moving down quickly from the overbought zone. The RSI has also started moving down.

The Chinese index seems ready to slip into a bear market.

Hang Seng index chart

The negative divergences in the technical indicators last week, plus the bearish mood in the Shanghai Composite dampened the bull fervour and dragged the Hong Kong index down.

The 3 months bar chart pattern of the Hang Seng index is looking a lot less bullish:-


Technically, one look at the three EMAs marching upwards will indicate that the index is in a bull market. But the underpinnings are beginning to weaken.

The 500 points lower close on Thu, Sep 24 '09 was accompanied by higher volume. At the time of writing this post, the index is down 195 points - which means it has dipped below the 20 day EMA and heading down towards the 50 day EMA. The medium-term average has not been penetrated since July '09, and should be an important support to watch.

The MACD has moved down, and is about to fall below the signal line. The ROC has swung back into the negative zone. The slow stochastic is still in the overbought zone, but the %K line has gone below the %D. The RSI touched the overbought zone before slipping down.

There is no immediate threat to the bull market, but the Hang Seng is being dragged down by its big brother.

Straits Times (Singapore) index

The Singapore index was looking stronger than its Chinese counterparts when I last looked at it 4 weeks back. The 3 months bar chart pattern of the Straits Times index shows that the bulls are still very much in control:-

Straits Times_Sep2509

The 20 day EMA has provided solid support to the index so far. The bulls however, have been kept in check by the bears. The 2700 level has been a strong resistance level. The widening gap between the 50 day and 200 day EMA is also a concern.

The technical indicators are giving mixed signals. The MACD is falling, but hanging on to the signal line. The ROC has dropped to the '0' line. The slow stochastic is meandering sideways below the overbought zone. Only the RSI is looking bullish by smartly moving up from the 50% level. But all the indicators are showing negative divergences, having made lower tops while the index is near its previous high.

Bottomline? The movements of the Shanghai Composite index is casting a shadow on its Asian brethren. The Hang Seng and Straits Times indices are still bullish, but showing signs of strain. Profit booking should be on the cards.


tax_trp said...

sir, very good technical analysis contrats.
I was browsing through your previous posts,got acquainted with your dislike for psu companies,i got a bit upset as my 60% of portfolio consist of psu companies like bhel, sbi, sci,ongc powergrid, ntpc, balmer, vijaya bank, bank of maharashtra, concor, etc.
i do agree with you that the working of psu depends on will and wish of political babu's and where red tapism is the order of the day.
i remember around 1996 when is was in my first year of college, i visited global trust bank with my friend to deposit his father's money, for me it was a completely a new experience, bank decorated with shining tiles, as i was a teen it was a visual delight to see beautiful girls executives attending the customers, bank fully air conditioned, light music in the background, but it got vanished.
After my CA inter i applied erstwhile satyam computers for the post of assistant finance manager in 2001, after a full day's grilling they refused me job selecting qualified CA, i lived with the guilt for long, till raju confessed fraud, its was said that the company had 6000 crores in its balance sheet,we dont know the facts but shareholder's lost piles of money.
This two experiences prompted me to relook and reshuffle my portolio.
sir dont we think even psu companies has created wealth over period of time for its sharehoders, no matter its far less than its counterparts like infosys, wipro, hul, LT etc.
I am a bit confused
Bless me with your comments.
mansoor panjwani

Subhankar said...

Hi Mansoor

Every investor should have a strategy that fits his/her risk tolerance and comfort levels. Keep your mind open to different viewpoints, but take your own decisions.

Years ago, Russi Mody (who was then the TISCO MD) got fed-up with government's meddling in corporate affairs and made a comment: The government has no business to be in business.

When I started investing, back in the 1980s, there were very few PSUs that were making profits, let alone being darlings of the stock market. The recent problems of the oil and gas companies were solely due to government's policy decisions.

I have a positive bias towards the market leaders in an industry or sector. The types of fraud or problems that you've mentioned in Satyam or Global Trust Bank (and many others of their ilk) rarely happen with market leaders - who are leaders because they have capability and integrity.

Your PSU portfolio comprises mostly good stocks which I wouldn't mind holding - but for my bias. By the way, fraud is not limited to the private sector. A former MD of IFCI was responsible for the near bankruptcy of the company.

tax_trp said...

A very good educative and informative reply, thanks.
mansoor panjwani