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Friday, May 21, 2010

Stock Index Chart Patterns - Shanghai Composite, Jakarta Composite, Hang Seng - May 21, '10

Shanghai Composite index chart


Last week, I had mentioned that the Shanghai Composite index chart pattern was trying to stay above the last level of support - the Sep '09 low of 2640 - which it managed to do on a closing basis through the week. But the technical indicators were not holding out much hope for the bulls.

The 2640 level was broken on the very first day of the week, and the index closed lower at 2560. As is usual in such cases, the support level immediately turned into a resistance level. The Shanghai Composite failed to move above the 2640 level even on an intra-day basis during the rest of the week.

The technical indicators continue to be very bearish, as the Shanghai Composite continues to fall in a downward channel well below the falling 20 day EMA. All three EMAs are now falling together with the index below them - a typical bear market scenario.

The slow stochastic has been inside the oversold zone for more than 3 weeks, and is showing no inclination to venture out. The MACD is below the signal line and continues to fall in negative territory. The ROC is well inside negative territory and moving sideways. The RSI has just inched above the oversold zone, but not really going anywhere.

If the bulls don't fight back soon, the Shanghai Composite may test Oct '08 bear market lows - and drag the rest of the global indices down with it.

Hang Seng index chart


The Hang Seng index chart pattern is looking slightly better off than the Shanghai Composite, but looks can be deceiving. Thursday's intra-day low of 19276 was nearly 150 points lower than the previous low of 19423 touched more than 3 months back.

The index closed the week at 19546, but the breach of the previous low should set alarm bells ringing for the bulls. Now we have a longer-term 'lower top - lower bottom' bearish pattern on the chart. The psychological 20000 level, which provided good support to the Hang Seng in the previous week, has turned into a resistance level.

The falling 50 day EMA should go below the 200 day EMA next week. That will technically signal the beginning of the bear market. Or, should I say, the revival of the bear market.

The slow stochastic is in the oversold zone. The MACD is below the signal line and slipping deeper into the depths. The ROC is well inside negative territory. The RSI is below the 50% level but has not yet entered the oversold zone.

Jakarta Composite index chart


Five weeks ago, the Jakarta Composite index chart pattern was resembling a fighter jet that had just taken off, rapidly climbing with its nose tilted up. But the ROC and RSI were showing negative divergences that led me to state: 'The negative divergence is likely to take its toll soon.'

The index dipped a bit to take support from the rising 20 day EMA on Apr 19 '10 and then soared even higher to hit the 2996 mark on May 4 '10. That is when its engines stalled. A sharp 3 day correction took it well below the 50 day EMA.

The expected pullback effort by the bulls faced strong resistance from the falling 20 day EMA. The fall resumed this week and started intensifying on rising volumes - a bad omen for the bulls.

The index closed the week at 2623 - not very far above the still rising 200 day EMA. A bearish 'lower top - lower bottom' pattern has formed on the chart. The technical indicators are hinting at a break below the 200 day EMA, which would be the first sign of a bear market.

The slow stochastic is about to enter the oversold zone. The MACD has dipped into negative territory and is below the signal line. The ROC is falling in the negative zone. The RSI is below the 50% level and moving down.

Bottomline? The chart patterns of the Asian indices show that the bulls are on the mat and the count has reached 8. The downward momentum is increasing. The time is not yet ripe for bottom fishing. Conserve cash, or may be, buy some gold.

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