Stock Index Chart Patterns - Hang Seng, Malaysia KLCI, Jakarta Composite - Jun 18, '10

Hang Seng index chart

In last week's analysis of the Hang Seng index chart pattern, the improvement in the technical indicators and a close above the 20 day EMA had hinted at a continuation of the pullback rally.

The index closed above the psychological 20000 level through the week but failed to move past the resistance of the falling 50 day EMA three days in a row. Today's 150 points up move overcame the resistance from the medium-term moving average and ensured a second straight higher weekly close.

The 200 day EMA is less than 300 points away, and the bulls will surely attempt to clear that resistance next week. But will they succeed? The volume support during this pullback rally has been sorely lacking, which raises a question mark about the rally continuing much longer.

The technical indicators are giving mixed signals. The slow stochastic has entered the overbought zone. The MACD is above the signal line and rising in negative territory. The ROC is positive but showing a bit of negative divergence. The RSI is drifting down after nearly reaching its overbought zone.

Malaysia (KLCI) index chart

The previous look at the Malaysia KLCI index chart pattern was at the beginning of the year, when the index was looking quite bullish. It had closed at 1273 on Dec 31 '09 and went on to make a top at 1350 on May 4 '10.

The bears attacked shortly afterwards. The index had a sharp fall and closed below the 200 day EMA two days in a row on strong volumes, before sliding lower to 1244 on May 27 '10.

A 'reversal day' pattern (lower low, higher close) encouraged the bulls to start a pullback rally that has retraced 70% of the correction and taken the index above all three EMAs, as well as the psychological 1300 level.

As in the Hang Seng index chart, volume support has been puny. An up move on low volumes doesn't inspire confidence. Both the slow stochastic and RSI have reached their 50% levels. The MACD is above the signal line and rising in negative zone. The ROC is positive but falling - a negative divergence.

Jakarta Composite index chart

The Jakarta Composite index chart pattern shows that the bulls are well and truly back in business. The bears managed to push the index down below the 200 day EMA only for a couple of days.

The pullback has been strong with decent volume support. The 20 day EMA has just edged above the 50 day EMA, and all three EMAs are rising with the index above them. The Jakarta stock market is now a favourite playground of the FIIs.

Today's close of 2930 is just 66 points (2.25%) below the May 4 '10 top of 2996. It won't be surprising if we see a new high before this month ends.

The slow stochastic is well inside the overbought zone. The MACD is above the signal line and has entered positive territory. The ROC is positive but showing negative divergence. The RSI has turned down after nearing its overbought zone but remains above the 50% level.

Bottomline? The chart pattern of the Hang Seng index is still not out of the bear's grip. But the bulls are back in control in both the Malaysia KLCI and the Jakarta Composite indices. Till the previous tops in the chart patterns are crossed, buying should be tempered with caution.