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Friday, May 28, 2010

Stock Index Chart Patterns - Shanghai Composite, Taiwan TSEC, Hang Seng - May 28, '10

Shanghai Composite index chart

ShanghaiComp_May2810

The 3 months closing chart pattern of the Shanghai Composite index shows a brave fight back by the bulls. The index closed 73 points higher on a weekly basis at 2656 - just above the Sept '09 low of 2640. The down trend line connecting the lower tops of April and May '10 was pierced from below. That is good news for the bulls. Further up side in the near-term - to the falling 50 day EMA or even the 200 day EMA - can be expected.

Now the bad news. All three EMAs are falling with the index below them. Today's intra-day high of 2686 faced resistance from the 20 day EMA. So the Shanghai Composite remains in a bear market.

The technical indicators have strengthened since last week. The slow stochastic has emerged from the oversold zone but is below the 50% level. The MACD is deep in negative territory but has moved above the signal line. The ROC has edged into the positive zone. The RSI is below the 50% level but moving up.

Any upward move may face resistance in the 2800-3000 band and is likely to be used by the bears to sell.

Hang Seng index chart

HangSeng_May2810

A 335 points up move today pierced the down trend line and took the Hang Seng to a 220 points higher weekly close at 19767. Just like in the Shanghai Composite index, the falling 20 day EMA put paid to further bullish hopes by resisting the up move.

Despite the strong effort by the bulls to regain lost glory, the 50 day EMA moved below the 200 day EMA providing the final confirmation of the bear market. All three EMAs are now moving down with the index below them.

The technical indicators are hinting at near-term strength. The slow stochastic is about to emerge from the oversold zone. The MACD has stopped falling though it remains below the signal line. The RSI is below the 50% level but rising. Only the ROC is looking weak.

Taiwan (TSEC) index chart

TSEC_May2810

The Taiwan TSEC index chart is also in a bear market. The double-top bearish pattern in April '10 led to a sharp fall. The recent low of 7032 (on Tuesday, May 25 '10) dropped below the Feb '10 low of 7173 - forming a longer-term bearish 'lower top - lower bottom' pattern.

Today's up move faced resistance from the down trend line connecting the Apr and May lower tops. The 20 day EMA has fallen below the 200 day EMA and the 50 day EMA may do so soon.

The technical indicators show mild strength. The slow stochastic is about to move out of the oversold zone. The MACD has stopped falling. The ROC is in negative territory but trying to rise. The RSI bounced off the oversold zone but is below the 50% level.

Bottomline? The chart patterns of the Chinese indices are showing near-term strength but longer-term weakness. Any rise to the falling 20 day and 50 day EMAs can be used for selling by bears. Investors can wait for some signs of stability before entering.

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