Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Jul 08 ‘11

The wheat is getting separated from the chaff in the chart patterns of the Asian stock indices. The Hang Seng index is in real danger of falling into a bear market. The Straits Times index has averted a bear market so far, but is still struggling in a down trend. The KLCI index has broken above its down trend line, as was expected in last month’s post.

Hang Seng Index Chart

The Hang Seng index seems to be in trouble. The index not only dropped below the 200 day EMA last month, but broke below the 8 months long downward-sloping channel. The subsequent sharp bounce re-entered the channel and climbed up to the 200 day EMA, where it is facing resistance.

The bad news for the bulls is that the 50 day EMA has slipped below the 200 day EMA – the dreaded ‘death cross’ that signals a bear market. The technical indicators are looking bullish and showing positive divergences. The MACD is negative, but has risen above the signal line. The ROC is positive and above its 10 day MA. RSI and slow stochastic have entered their overbought zones. ROC, RSI and slow stochastic have reached higher tops, while the index has reached a lower one.

The Hang Seng may make an effort to cross the 200 day EMA next week, which can be an opportunity to book some profits. The drop below the channel is not a good sign for bulls.

Singapore Straits Times Index Chart

A deeper correction and a test of the Mar ‘11 low was expected in last month’s analysis. But the Straits Times index recovered quickly to climb above all three EMAs, before encountering strong resistance form the blue down trend line.

Technical indicators are looking bullish and all four are showing positive divergences – reaching higher tops while the index reached a lower one. Today’s volume uptick is a sign that the index may break above the down trend line next week. Buy on the break out, and add more on any pullback.

Malaysia KLCI Index Chart

The KLCI index tried for several days in June ‘11 before breaking above the blue down trend line. It has reached a new all-time high, but there are some dark clouds on the horizon.

Volumes were not all that great during the break out and the subsequent climb to a new high. A bull market without volume support is suspect. Also note the negative divergences in all four technical indicators, which reached flat or lower tops even as the index rose higher (marked by blue arrows).

A correction down to the blue down-trend line can be expected. That may be a buying opportunity.

Bottomline? The bears are still active in the chart patterns of the Hang Seng and Straits Times indices. The bulls have regained full control of the KLCI index. Buying is not advised till the down-trend lines in the Hang Seng and Straits Times indices are convincingly breached.