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Friday, August 27, 2010

Stock Index Chart Patterns - Shanghai Composite, Jakarta Composite, Hang Seng - Aug 27, '10

Shanghai Composite index chart

ShanghaiComp_Aug2610

In last week’s analysis of the Shanghai Composite index chart pattern, the formation of a bullish ascending triangle pattern was mentioned, but an upward break out had become doubtful because all four technical indicators were displaying negative divergences.

It was no surprise that the index drifted down below the entangled 20 day and 50 day EMAs. A close exactly on the 50 day EMA could not prevent a loss of 1.2% on a weekly basis.

The bear market will remain in force as long as the Shanghai Composite remains below the 200 day EMA. The 20 day EMA has moved above the 50 day EMA, which is a semblance of hope for the bulls. The technical indicators are hinting at a resumption of the down trend.

The slow stochastic and the RSI have both dipped below their 50% levels. The MACD has slipped below the signal line. The ROC had dropped into negative territory, but has managed to pull back into the positive zone.

The longer-term bullish rounding bottom chart pattern (mentioned last week) is still in tact, but is in danger of being negated unless the bulls can regroup quickly and mount a fresh rally.

Hang Seng index chart

HangSeng_Aug2610

The Hang Seng index chart pattern was desperately trying to cling on to the 20 day EMA and remain in a bull market, but the force of gravity proved too strong. Even the combined supports from the entwined 50 day and 200 day EMAs and the up trend line joining the May ‘10 and Jul ‘10 could not prevent the index from dropping back into a bear market.

The technical indicators have all turned bearish, which means a deeper correction may be in the offing. The slow stochastic is in the oversold zone. The MACD is below the signal line and slipped into negative territory. The ROC is well inside negative territory. The RSI is at the edge of the oversold zone.

The technical confirmation of a bear market – both the 20 day and 50 day EMAs falling below the 200 day EMA – is awaited. But it is a question of ‘When?’, not ‘if’. Any attempts at a pull back will provide selling opportunities

Jakarta Composite index chart

Jakarta_Aug2610

The Jakarta Composite index chart pattern is miles away from the trials and tribulations of the Chinese indices. It was in a full-fledged bull market, making new 52 week highs and looking a bit overbought when I analysed the chart on Jul 23, ‘10.

The Jakarta Composite hit a new high of 3104 on Jul 30, ‘10 before the expected pause came in the form of a correction that lasted all of 4 days. The index closed twice below the 20 day EMA and the 3000 level, before resuming the bull rally with renewed vigour.

A new 52 week high of 3150 was touched on Thu. Aug 26, ‘10. Profit booking today saw the index close 12 points lower on a weekly basis. Volumes have picked up considerably, which is a good sign but the technical indicators are showing signs of negative divergence.

The slow stochastic has entered the overbought zone. The MACD is positive and above the signal line, but has made a lower top. The ROC is positive but has drifted down even as the index made a new high. The RSI is at the edge of the overbought zone but has made lower tops.

A correction down to the 20 day or 50 day EMA can be expected in the near future.

Bottomline? The chart patterns of the Shanghai Composite and the Hang Seng are in bear markets. Sell on rises. The Jakarta Composite is in a strong bull market that has lasted 16 months. Buy the dips, with trailing stop-losses.

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