Friday, August 20, 2010

Stock Index Chart Patterns - Shanghai Composite, Korea KOSPI, Hang Seng – Aug 20, '10

Shanghai Composite index chart


The Shanghai Composite index chart used the strong support from the entangled 20 day and 50 day EMAs and made another attempt to extricate itself from the bear grasp. The upward bounce failed to clear the 2700 level. The index remained 150 points below the 200 day EMA, but closed about 1.4% higher on a weekly basis.

The Shanghai Composite has made a bullish ascending triangle pattern, from which the likely break out should be upwards. But all four technical indicators are showing negative divergences, by making lower tops as the index made several tops in the 2675-2700 zone.

The slow stochastic has moved up after touching the 50% level, and the %K has crossed above the %D. Both are bullish signs. However, it stopped at the edge of the overbought zone. The MACD has edged above the signal line. The ROC touched the ‘0’ line and moved back into positive territory. The RSI has slipped down to the 50% level.

The bulls are down on points, but will continue to fight as long as the index remains above the 20 day and 50 day EMAs. On the longer term charts, the index seems to be forming a bullish rounding bottom pattern. To complete the pattern, the index needs to rise another 500 points (19%) over the next 4-5 weeks.

Hang Seng index chart


The technical indicators of the Hang Seng index chart were looking bearish a week ago. They turned weaker as the index grappled with the falling 20 day EMA to get back into a bull market. Today’s fall took the index below the psychological 21000 level, as it closed 90 points lower on a weekly basis.

The slow stochastic and RSI have both dropped below their 50% levels. The ROC has slipped into negative territory. The MACD is below the signal line and falling.

The up trend line joining the bottoms made in May ‘10 and July ‘10 is currently at the level of the entwined 50 day and 200 day EMAs. The bulls will try to ensure that the Hang Seng index doesn’t drop below the trend line into bear country.

KOSPI (Korea) index chart


The KOSPI (Korea) index chart had just emerged above the 50 day and 20 day EMAs after a strong bear attack when I had last taken a look in early July ‘10.

The index proceeded on a strong bull rally that stalled after a ‘reversal day’ pattern formed on Aug 5, ‘10. The index touched a new high of 1797 but closed lower than the previous day. A sharp correction took the index briefly below the 50 day EMA.

The bulls charged immediately and took the KOSPI above all the three EMAs. The technical indicators are not looking all that bullish yet. Volumes have started to slip as the index moved up this week.

The slow stochastic is just above the 50% level and the %K line has crossed above the %D. The MACD has started to rise but is still below the signal line. The ROC has reached the ‘0’ level from below. The RSI is rising slowly but hasn’t reached the 50% level.

Bottomline? The Shanghai Composite index chart is trying to change directions in a bear market. Very selective buying (with strict stop-loss) suggested. The Hang Seng is dangerously close to falling into bear country. Hold till a clear direction emerges. The KOSPI chart has been in a bull market for two months, forming higher tops and bottoms. Buy the dips.

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