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Friday, April 23, 2010

Stock Index Chart Patterns - Shanghai Composite, Taiwan TSEC, Hang Seng - Apr 23, '10

Shanghai Composite index chart


Analysing the chart pattern of the Shanghai Composite index last week, I had cautioned that the bulls were not able to regain control from the bears as the index had a lower weekly close.

The crackdown by the Chinese authorities on property deals provided just the opportunity for bears to mount a fresh offensive. The weak bulls capitulated and the index plummeted below the 3000 level and the 200 day EMA.

Except for a brief respite on Wednesday, Apr 21 '10, the Shanghai Composite remained below the psychological 3000 level and the technically important 200 day EMA. The 20 day EMA has dropped to the falling 50 day EMA.

The technical indicators have all turned bearish. The slow stochastic has fallen below the 50% level. So has the RSI. The MACD has moved down into the negative territory and is below the signal line. The ROC has also entered the negative zone.

The saving grace for the bulls is that the index has not fallen too far below the long-term moving average, which means an upward bounce remains a possibility. But a drop below the Feb '10 low of 2890 will form a very bearish 'lower top - lower bottom' pattern.

Hang Seng index chart


The Hong Kong property market was jolted by the Chinese government crackdown. The Hang Seng index followed the Shanghai Composite by dropping below the 20 day EMA. It oscillated between the 20 day and 50 day EMAs for three days. Today's 200 point fall took the index below the 50 day EMA, and another lower weekly close.

Strong volumes on down days (last Friday and on Monday) is not a good sign for the bulls. A test of support from the 200 day EMA is quite likely. The slow stochastic has fallen sharply below the 50% level. The MACD is positive but has dipped below the signal line. The ROC has just entered the negative zone. The RSI managed to stay above the 50% level.

All is not lost for the bulls - yet.

Taiwan (TSEC) index chart


The bears in the mainland may have used the property crackdown as an excuse to press sales. But the Taiwan (TSEC) index fell more in sympathy than for any fundamental or technical reason. After a sharp fall and a close below the 50 day EMA on Monday, the index gradually moved up and closed above the 20 day EMA and the psychological 8000 level today.

The slow stochastic has fallen below the 50% level. The MACD is positive but below the signal line. The ROC has entered negative territory. The RSI has moved above the 50% level after dipping below it.

Four weeks ago, I had mentioned that the Jan '10 highs will be tough barriers to climb. The recent high of 8190 on Apr 15 '10 fell short by more than 200 points.

Bottomline? After a respite of two months, the Asian indices are once again struggling to fend off the bears. Keep a close watch on the 200 day EMAs and the Feb '10 lows for possible support to the down moves. A convincing breach of either support could lead to deeper corrections.

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