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Friday, September 17, 2010

Stock Index Chart Patterns - Hang Seng, Jakarta Composite, Malaysia KLCI - Sep 17, '10

Hang Seng index chart

HangSeng_Sep1710

The chart pattern of the Hang Seng index appears to have made a bearish double-top pattern – a top at 21806 in Aug ‘10, and one at 21819 a month later. The MACD, ROC and RSI have all made lower tops. The negative divergences further supports the bearishness.

But looks can deceive some times. This is what makes technical analysis challenging. Check out the volume bars. Around the time that the Hang Seng made its previous high of 21806 in Aug ‘10, the volumes were lower. The high made on Sep 15 ‘10 was 21819, a slightly higher top, accompanied by higher volumes.

The first criterion for a double-top is that the volumes should be lower during the second top. Also, the second top is typically at the same level or slightly lower – though that isn’t a ‘rule’.

Today’s (Fri. Sep 17 ‘10) trade has put paid to any bearish hopes. The Hang Seng touched an intra-day high of 21989 and closed at 21971 – 700 points (3.3%) higher on a weekly basis. The index continues with its bullish pattern of higher tops and higher bottoms since the May ‘10 low of 18972.

The 50 day EMA has moved above the 200 day EMA which technically confirms the return to the bull market. The Apr ‘10 top of 22389 - just 400 points away – is the next hurdle on the path of the charging bulls.

Malaysia (KLCI) index chart

KLCI Malaysia_Sep1710

The Malaysia (KLCI) index chart pattern shows that the bears are not only down and out, but have lost their will to fight back. The index has been soaring upwards, supported by strong volumes. All three EMAs are moving up with the index well above them.

The technical indicators are all bullish. The slow stochastic has remained in the overbought zone for almost a month. The MACD is above the signal line, and moving up in positive territory. The ROC is positive. The RSI is also in the overbought zone, but made a lower top.

Is it time for the bears to go into hibernation? Not if they understand technical analysis. The index and the EMAs are moving far apart from each other – a sign that bulls have gone a bit overboard in their buying. The KLCI index looks overbought and ripe for a correction.

A dip towards the 20 day EMA will provide entry opportunities, and fresh impetus to the bulls to take the index higher.

Jakarta Composite index chart

Jakarta_Sep1710

The Jakarta Composite index chart spent a week long (Sep 8-14, ‘10) Eid vacation – much to the consternation of the Indonesian President, who felt that overseas investors may get the wrong message about the country’s global ambitions.

If the bears thought the long break will curb the bullish fervour, they were sadly mistaken. Spirited buying during the 3 days of this holiday-shortened week took the Jakarta Composite index to an all time high of 3391 today.

The technical indicators are bullish. The slow stochastic is in the overbought zone. The MACD is above the signal line and rising in positive territory. The ROC is moving up in the positive zone. The RSI is about to enter the overbought zone.

Bottomline? The bulls are ruling in the chart patterns of the Asian indices. Bull market tactics should be followed. Buy the dips, but maintain adequate stop-losses.

2 comments:

satvinder said...

Subankar Ji Please Guide as I've seen many times line depicting On Balance volume and line for Accamulation and Distribution goes in different directions. eg. obv goes higher and a/d line goes down. And some time they both move in tendem. what is indicated by these moves. Please guide.

Satvinder.

Subhankar said...

The OBV and Advance/Decline (A/D) line are supposed to track an index (or stock). When there is a divergence, we need to examine the reasons.

The concept behind the OBV calculation is faulty. If the index rises on a given day, the entire daily volume is treated as rising volume. Ideally, the difference in volumes between rising and falling stocks should be used.

When the index rises on poor breadth (i.e. advances less than declines), the A/D line goes down but the OBV still goes up. A falling A/D line near intermediate or bull market tops is a warning of an impending correction or trend change.

Don't worry about such things too much. One has to look at several indicators - which often contradict each other - to arrive at a conclusion. Technical analysis takes years of practice, and still doesn't work at all times. That is one reason why I advocate using a combination of fundamental and technical analysis for buy/sell decisions.

The trick to making money in the stock market is to make the effort of choosing fundamentally strong stocks, buy them at fair prices and hold them for the long term. It is simple, but not easy - as Buffet has said!