Friday, May 7, 2010

Stock Index Chart Patterns - Shanghai Composite, Singapore Straits Times, Hang Seng - May 7, '10

Shanghai Composite index chart


This is as good a time as any to take a look at the long-term bar chart pattern of the Shanghai Composite index. Some times we get caught up with short-term day to day movements in chart patterns and forget the bigger picture.

After making a high of 6089 in Oct '07, the Shanghai Composite index chart pattern started a long-term bear market that has lasted two and a half years and shows no sign of stalling. The index made a low of 1665 in Oct '08, and embarked on a bear market rally that reached a high of 3478 in Aug '09 - retracing 40% of the entire bear market fall (slightly higher than the 38.2% Fibonacci retracement level).

In technical analysis, only a convincing cross of the 61.8% Fibonacci retracement level is considered as a change of trend. The Shanghai Composite index fell well short and entered a sideways consolidation with a downward bias (note the progressively lower tops from Nov '09 to Apr '10 on lower volumes).

So, has the Shanghai Composite index re-entered the bear market? It has dropped convincingly below the 200 day EMA (currently at 3000) but has closed just above the long-term support-resistance level of 2800. A close below the 2640 mark - its low of Sep '09 - will remove the last shred of doubt.

Why should we be concerned about the movements of the Shanghai Composite? Thanks to globalisation, the world indices have become interdependent. The fastest growing economy is still in a bear market - and had started the slide in global indices back in Oct '07. If the Shanghai Composite index continues to head south, world indices may follow suit soon. Greece may have provided the trigger for it already.

Hang Seng index chart


The Hang Seng index chart is following the lead of the Shanghai Composite as it tumbled below the 200 day EMA and closed the week below the psychological 20000 level. Today's intra-day low of 19700 came perilously close to the Feb '10 low of 19423.

Bulls may have some hope if the Feb '10 low is not penetrated. But it seems just a matter of time before it falls by the way side. That will make a longer-term lower top-lower bottom bearish chart pattern.

The technical indicators are all looking very bearish. The slow stochastic is well inside the oversold zone. The MACD is below the signal line and dropping in  negative territory. The ROC is also negative and falling. The RSI is on the verge of entering the oversold region.

Straits Times (Singapore) index chart

Straits Times_May0710

The ripple effect from the bearish Chinese indices are being felt across the world, and the Singapore Straits Times index was no exception. The index fell steeply by more than 150 points closing 5% lower on a weekly basis.

The bulls will take heart from the fact that the index closed above the psychological level of 2800 and remains above the rising 200 day EMA. But both the 20 day and 50 day EMAs have reversed directions, and the technical indicators have all turned bearish.

The slow stochastic has entered the oversold zone. The MACD is below the signal line and turned negative. The ROC is negative and moving down. The RSI is about to drop to the oversold zone.

Bottomline? The chart patterns of the Asian indices are facing a severe bear mauling. The Eurozone problems are creating nervousness among investors. Keep your buy list ready, but don't enter the markets till bottoms are established. That may take a while.

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