Friday, September 30, 2011

Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Sep 30 ‘11

In the previous post on the chart patterns of Hang Seng, Straits Times and KLCI indices, it was observed that the index that had fallen the most (Hang Seng) had bounced up the highest; and the index that had fallen the least (Malaysia KLCI) had bounced up the least. The tables have been turned in the intervening three weeks. The one that bounced up the highest has fallen the hardest, and the one that bounced up the least has fallen the least. All three indices are deep inside bear markets, with no signs of a recovery.

Hang Seng Index Chart

The bears are using every rise to sell, and the Hang Seng index is sliding into the dark depths of a bear market. In the previous post, I had mentioned that the Aug 9 '11 intra-day low of 18868 would be tested and breached. The index fell much further - to an intra-day low of 17000 on Sep 26 '11. What is more ominous, is the formation of another big gap between 18700 and 18300.

If it is a 'measuring gap' - and it most probably is one - then the index can fall to 16000. Measuring gaps tend to occur at the half-way point of a down (or up) move. But if it is an 'exhaustion gap', then the index may form a bottom at current levels before starting an up move. I don't like betting on index movements because the odds don't exceed 50%. But if some one held a gun to my head, I would place a bet on the Hang Seng falling to 16000.

The technical indicators are quite bearish. The MACD is negative, and below its signal line. The ROC is trying to rise, but remains well inside negative territory. The RSI bounced off its oversold zone, but is turning down again. The slow stochastic has emerged from its oversold zone, but today's loss of 400 points (not shown in the chart) should snuff out any bullish hopes. The only silver lining is that three of the four technical indicators didn't fall lower with the index. The positive divergences may lead to a consolidation or a brief rally.

Singapore Straits Times Index Chart

The falling 20 day EMA has proved to be an insurmountable resistance for the Singapore Straits Times index chart. After an expected period of consolidation, the index moved down to test and breach the Aug 22 '11 intra-day low of 2681 A new intra-day low of 2627 was touched on Sep 26 '11.

Note that all four technical indicators reached higher lows, even though they are in bear territory. The combined positive divergences may trigger another rally that may take the index past the falling 20 day EMA. No need to feel elated. Bears will surely use the opportunity to sell.

Malaysia KLCI Index Chart

Malaysia's KLCI index chart pattern had been one of the most resilient among the Asian indices during the bear rampage across the region. But after the 'death cross' of the 50 day EMA below the 200 day EMA, the index fall has been almost vertical. The index is going through a 'dead-cat bounce' - the receding volumes is a clear indication - which will provide more opportunities for selling.

The technical indicators are bearish. The MACD is negative, and below its falling signal line. The ROC is also negative, though it has climbed up quite sharply. Both the RSI and the slow stochastic have emerged from their oversold zones, but are well below their 50% levels.

Bottomline? All three Asian indices are deep within bear markets, and heading further south. Neither the fundamental nor the technical outlooks are rosy. Bide your time to enter at lower levels.