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Sunday, October 17, 2010

Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Oct 15 ‘10

Hang Seng Index Chart

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The Hang Seng index chart had appeared to make a bearish double-top pattern when I wrote a technical analysis of the Hong Kong stock index four weeks back. The technical indicators were supporting the bearishness with their negative divergences. But the volume and price action indicated otherwise, and I concluded that the Hang Seng index had returned to a bull market.

The index has soared by more than 8% in four weeks to touch a new two years intra-day high of 23867 on Oct 14 ‘10, before closing the week at 23758. The rise has been supported by a considerable pick up in volumes. All three EMAs are moving up with the index above them. The bulls are back in control.

The technical indicators are strongly bullish. The slow stochastic has stayed inside the overbought zone for a month. The MACD is positive and rising above the signal line, and made a new high. The ROC is rising in positive territory and also made a new high. The RSI is in the overbought zone but has made a lower top.

The only hope for the bears is that the Hang Seng has risen a bit too steeply, and is more than a 1000 points above the 20 day EMA. A possible correction, down to the 20 day EMA will not only be healthy for sustenance of the bull market, but will provide entry opportunities.

Singapore Straits Times Index Chart

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Three weeks back, the Singapore Straits Times index chart was looking quite bullish but was facing a bit of profit booking after touching a 52 week high. The index has continued its bullish ‘higher tops and higher bottoms’ pattern and has since gained more than 110 points (3.5%), as it touched another new 52 week high of 3221.

The economy is back on track, and the technical indicators are reflecting the strength of the stock market. The slow stochastic is back in the overbought zone, after briefly dipping below. The MACD is positive and above the signal line. The ROC is positive, but failed to make a new high. The RSI is above the 50% level, but has made a lower top.

The negative divergences in the ROC and RSI may lead to some profit booking. Any dips can be used to add.

Malaysia KLCI Index Chart

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The Malaysia KLCI index chart has been in a firm bull grip ever since it got support from the 200 day EMA back in May ‘10. When I analysed the chart four weeks back, the index was looking overbought and ripe for a correction. The advice to investors was:

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

The KLCI index did precisely that, dropping to the 20 day EMA on Sep 24 ‘10 before moving steadily upwards to touch a new high of 1501 on Oct 14 ‘10. Good volumes indicate that the bull market is sustainable. All three EMAs are moving up with the index above them.

The slow stochastic has re-entered the overbought zone after a dip below. The MACD is positive and touching the signal line, but made a lower top. The ROC is also positive but failed to make a new high. The RSI has risen sharply to the overbought zone, but also failed to make a new high. The negative divergences in the technical indicators may cause the KLCI index to drop to the 20 day EMA again.

Bottomline? The chart patterns of the Asian indices are in strong bull markets. The sporadic efforts of the bears to halt the bull charge is leading to small corrections that are aiding the bull resolve. Buy on dips, and hold with trailing stop-losses.

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