Saturday, November 13, 2010

Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Nov 12 ‘10

Hang Seng Index Chart


Four weeks back, the Hang Seng index chart pattern was looking very bullish. But the index had risen too fast and was more than a 1000 points above the rising 20 day EMA. I had written that bears could hope for a possible correction down to the 20 day EMA. That would be good for the sustenance of the bull market, and provide entry opportunities.

The index did drop down to the rising 20 day EMA, received good support there and moved up more than 2000 points to touch a new intra-day high of 24988 on Mon. Nov 8 ‘10. The rise was too steep, and the volumes were much higher when the Hang Seng had touched its previous peak in Oct ‘10. All four technical indicators made lower tops. The effect of the combined negative divergences, plus the sell off in Korea KOSPI and Shanghai Composite led to a sharp correction that brought the index down towards the rising 20 day EMA once again.

The technical indicators have weakened a bit but remain bullish. The slow stochastic has slipped down from the overbought zone. The MACD is positive and above the signal line. The ROC is positive and the RSI is above the 50% level. All three EMAs are moving up, and the Hang Seng remains in a bull market. The dip can be used to add.

Singapore Straits Times Index Chart


The Singapore Straits Times index chart pattern had dropped below the 20 day EMA in late Oct ‘10, stopped short of falling to the 50 day EMA and made a spirited rally to a new high of 3314 on Nov 9 ‘10. A bout of profit booking saw the index close the week at 3252.

The bull market is in tact with all three EMAs moving up. The technical indicators are all bullish, though the RSI is showing negative divergence. Use the dip to add.

Malaysia KLCI Index Chart


The Malaysia KLCI index chart pattern touched a new high of 1532 on Nov 10 ‘10, but closed the week just below the 20 day EMA and the 1500 level. Note the lower tops in the MACD and ROC as the index kept on moving higher for the past two months.

The correction on the last two days have been on strong volumes, which is a concern. The slow stochastic and RSI have dropped sharply from their overbought zones.The MACD is positive and hanging on to the signal line. The ROC has almost dropped to the ‘0’ line.

The index may drop down to the 50 day EMA. Use the dip to add.

Bottomline? The chart patterns of the Asian indices are facing corrections after touching new highs. These corrections are good for the sustenance of the bull markets, and investors can use the dip to add to their portfolios. But please don’t throw caution to the winds. Maintain adequate stop-losses.

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