Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Aug 05 ‘11

Asian indices got hit by a ‘Black Friday’. The apparent reason for the high volume selling was the big sell-off in the US markets on Thu. Aug 4 ‘11. Such reasons are put forth to try and explain the unexplainable. Some times a market just gets tired and falls off due to its own weight.

Hang Seng Index Chart

In last month’s update of the Hang Seng index chart pattern, I had observed that the index was in trouble as it had dropped below the downward sloping channel. The ‘death cross’ of the 50 day EMA below the 200 day EMA meant that the index had fallen into a bear market. Investors were advised to book profits on any attempt by the index to cross above the 200 day EMA.

The index made two unsuccessful attempts to climb above the 200 day EMA. Today’s gap-down day below the channel, followed by a close below the 21000 level on strong volumes was the culmination of a 9 months long down trend. All four technical indicators are bearish, which means any bounce up is going to be met with more selling. Those who are still invested can use any bounce towards the lower edge of the channel to exit.

Singapore Straits Times Index Chart

The technical indicators of the Straits Times index chart had pointed to a likely break out above the blue down trend line. But the actual break out happened on volumes that were lower than the volumes just prior to the break out. That was a warning that the break out may be a ‘false’ one.

The pullback – typical after a break out – gapped down below the down trend line but received support from the 200 day EMA. Today’s high volume selling caused a big gap down below the 200 day EMA. The ‘death cross’ hasn’t occurred yet, but it may be just a matter of time. The technical indicators are looking bearish, and the index is likely to test and possibly break the Mar ‘11 low of 2920.

Malaysia KLCI Index Chart

The Malaysia KLCI index chart pattern had broken above the blue down trend line in mid-Jun ‘11. But I had noticed some dark clouds. Note that the moving average of the volume bars do not show any volume surge during the break out. The technical indicators were showing negative divergences – all four failed to reach new highs while the index touched a new peak in Jul ‘11.

The subsequent correction pushed the index below its 20 day and 50 day EMAs, but the index found good support from the down trend line. Today’s selling caused a gap down below the down trend line. Though the index fell below the rising 200 day EMA intra-day, it managed to close above the long-term moving average. The bull market is intact, but the technical indicators are bearish. A drop below the long-term support level of 1475 can cause a much deeper correction.

Bottomline? The Asian indices have suffered serious bear attacks and have fallen in apparent sympathy with the US and Eurozone indices. Technical indicators are pointing to deeper corrections. This isn’t a good time to be brave. Let the corrections run their course.