Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – May 15 ‘11

In last month’s analysis of the Asian indices, the concluding remarks were:

‘The down trend in the chart pattern of the Hang Seng index appears to have been reversed. The Singapore Straits Times and Malaysia KLCI haven’t quite reversed their down trends yet, but should be able to do so soon enough.’

Looks like ‘soon’ will take a bit longer! All three indices are still in down trends, which is bad news. But the good news is that all three indices are trading above their rising 200 day EMAs, which means technically they are in bull markets.

Hang Seng Index Chart

Last month’s down trend (dotted blue) line had been penetrated from below, but the Hang Seng couldn’t quite get past its Jan ‘11 top. The technical indicators were looking overbought, and I had expected the pullback to the down trend (dotted) line. Instead of bouncing up and resuming the rally, the index dropped down to its 200 day EMA.

The technical indicators are looking bearish, with just a hint of revival. The MACD is below its signal line, and both are in negative territory. The ROC is negative and below its 10 day MA, but trying to move up. The RSI has bounced up from the edge of its oversold zone, but is below the 50% level. The slow stochastic is struggling to emerge from its oversold zone.

The down trend in the Hang Seng index has been re-drawn as a downward-sloping channel, within which it may trade for a while longer.

Singapore Straits Times Index Chart

The Singapore Straits Times index dropped far enough below its 200 day EMA in Mar ‘11 to raise the spectre of a bear market. But the ‘death cross’ of the 50 day EMA below the 200 day EMA – which would have confirmed a bear market - never happened. The subsequent rally rose above all three EMAs, only to face strong resistance from the down trend line.

The technical indicators are less bearish than those of the Hang Seng index, but are giving mixed signals. The MACD is positive, but below its signal line. The ROC is negative but touching its 10 day MA. The RSI has dipped below the 50% level. The slow stochastic has moved above its 50% level.

Of late, the volumes on up days have been greater – a sign of accumulation. However, bulls should remain circumspect till the down trend line is convincingly broken.

Malaysia KLCI Index Chart

The technical indicators were looking overbought in the Malaysia KLCI index chart last month, and a correction to the 50 day EMA was expected. The index dropped a little below the medium-term moving average, only to move up again without coming anywhere close to the 200 day EMA.

The technical indicators are bullish, and there is a possibility of another test – and even a break – of the down trend line. The MACD is just above its signal line, and has entered positive territory. The ROC is barely positive, but above its 10 day MA. The RSI is above the 50% level and rising towards its overbought zone. The slow stochastic has entered its overbought zone.

Bottomline? The chart patterns of the Asian indices are still in their down trends, but are technically in bull markets. This is a good time to reallocate your portfolios by getting out of non-performers and switching to better stocks.