Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Aug 19 ‘11

Two weeks back, downward gaps occurred in the Hang Seng, Straits Times and KLCI chart patterns. Since the gaps were below support levels and accompanied by strong volumes, they were ‘breakaway’ gaps – signalling deeper corrections. I had suggested that investors should not try to be brave, and should sit out the corrections. Fortunately, the suggestion turned out to be judicious and timely.

Hang Seng Index Chart

The Hang Seng index chart dropped sharply on rising volumes to an intra-day low of 18868 on Aug 9 ‘11. Such sharp falls are usually followed by upward bounces, which are used by the bears to sell. The index couldn’t even reach its rapidly falling 20 day EMA, before heading downwards. Note that volumes reduced during the few days of rally, indicating that the rally would be short-lived. Today’s gap-down day on higher volumes has put paid to any lingering hopes of recovery by the bulls.

The technical indicators are bearish. The ROC crossing above its 10 day MA is a slight positive. The low of 18868 was a ‘panic bottom’, which means it is unlikely to hold. If you are still holding on, brace yourself for another 1000 point fall.

Singapore Straits Times Index Chart

The Singapore Straits Times index chart has two gaps – as if one wasn’t bad enough! The sharp fall on high volumes was followed by a ‘dead cat bounce’, which failed to prevent the ‘death cross’ of the 50 day EMA below the 200 day EMA. Today’s gap-down day on a volume spike means that the bears are taking complete control.

All four technical indicators are bearish, to the point of being oversold. That doesn’t mean that they can’t remain oversold for a while. The index has entered a strong support zone between 2700 and 2740. If it drops below 2700, the next support level is at 2430.

Malaysia KLCI Index Chart

The Malaysia KLCI index has exhibited a classic break down and pullback pattern. The drop below the support of the 200 day EMA was accompanied by a sharp rise in volumes, which means that the support would turn into a strong resistance. And so it did, when the index bounced up from its ‘panic bottom’ of 1423 (touched on Aug 9 ‘11).

The upward bounce led to the ROC crossing above its 10 day MA and the slow stochastic climbing above its 50% level. But the MACD failed to cross above its signal line and the RSI has slipped back into its oversold zone. The 50 day EMA is still 23 points or so above the 200 day EMA, but the ‘death cross’ appears inevitable. Time to head for the exit door.

Bottomline? The chart patterns of Asian indices bounced up from ‘panic bottoms’, but the worst isn’t over. Sentiments have taken a huge hit, and the FIIs are leaving in droves. Await lower levels to re-enter.