Stock Index Chart Patterns - Shanghai Composite, Hang Seng, Taiwan TSEC - Dec 25, '09

Shanghai Composite index chart

This is what I had mentioned in last week's analysis of the Shanghai Composite index chart pattern:-

'The saving grace for the bulls is that the Nov 27 '09 low of 3081 has not yet been broken. That would have started a bearish sequence of lower tops and bottoms. But the reprieve may be temporary. The technical indicators are not supporting a fight back by the bulls next week... Bulls should watch out for support at the 3000-3100 zone and below that, near the 200 day EMA.'

The reprieve for the bulls turned out to be temporary after all, as the index broke and closed below the previous low of 3081 on Dec 22 and Dec 23 '09, thereby creating a bearish lower-top-lower-bottom pattern.

But the bulls managed to regroup in the mentioned 3000-3100 support zone and the index bounced up towards the falling 50 day EMA by the end of the week (chart not updated for Dec 24 and 25 '09 at the time of writing this post).

The technical indicators continue to look weak. The slow stochastic has dropped to the oversold zone. The MACD is in negative zone and below the signal line. The ROC is in the negative zone as well. The RSI is just below the 50% level.

Hang Seng index chart

The Hang Seng index chart pattern managed to avoid breaking the Nov 27 '09 low of 21002 by a whisker. The index did drop below the 21000 level to 20933 on Dec 21 '09. But it immediately started to move upwards and formed a smart little bullish rounding bottom. So, technically, the earlier bottom can be considered as a support.

The up move on lower volumes is not too convincing. The Hang Seng index faced resistance from the confluence point of the 20 day and 50 day EMAs. But EMA confluence points can also act as a bullish signal. So we will need to observe the index closely in the near term.

The technical indicators were beginning to look really bearish, but there are signs of a turnaround. The slow stochastic has bounced up from the oversold zone. The MACD has started to rise, though it is in the negative zone and below the signal line. The ROC has started to rise sharply in the negative zone. The RSI stopped short of dropping into the oversold zone and is moving sideways.

Taiwan (TSEC) index chart

During my last look 4 weeks back, the Taiwan (TSEC) index chart had dropped steeply below the 50 day EMA, threatening to halt the bull rally. But the bears could not sustain any follow through sales.

The TSEC index embarked on another leg of the strong bull rally that took it to a new high of 8009 today on rising volumes. All three EMAs are rising and the index is well above the three moving averages.

The technical indicators are supporting the bullishness. The slow stochastic has moved up into the overbought zone - a stark contrast to its mainland cousins' charts. The MACD is moving up in the positive zone and is above the signal line. The ROC is in the positive zone. The RSI is above the 50% level.

But there are dark clouds on the horizon. The index is looking overbought. The negative divergences in the MACD, ROC and RSI are hinting at another correction - which may not be too deep.

Bottomline? The chart patterns of the Shanghai Composite and Hang Seng indices are trying to recover from bear attacks. Investors may do well to wait and watch next week. The TSEC index, by contrast, is looking quite bullish. Partial profit booking may not be a bad idea.