Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Oct 28 ‘11

The apparent ‘resolution’ of the Eurozone debt crisis seems to have acted like a tonic for the Asian stock indices, which soared past expected resistance levels, backed by strong volumes. Two weeks back, I had made the following comment:

‘The first signal of a trend reversal will be the crossing of the 20 day EMA above the 50 day EMA. So keep a watch on the short-term and medium term moving averages.’

The 20 day EMAs are still below the 50 day EMAs, but things may change quickly if the general euphoria in global markets continue unabated next week.

Hang Seng Index Chart

The Hang Seng chart has filled the gap between 18300 and 18700 quite comfortably, and rose past its 20 day and 50 day EMAs. The larger gap between 21018 and 21726, and the falling 200 day EMA are likely to provide stronger resistances to the rally.

The technical indicators are looking overbought, which may lead to a correction or consolidation. The MACD has risen sharply above its signal line into positive territory. The ROC is also positive and above its 10 day MA, but reached a lower top as the index rose higher. The RSI and the slow stochastic are both inside their overbought zones.

A correction down to the 50 day EMA may help the index to gather more energy to climb past the 200 day EMA. Till then, it technically remains in a bear market.

Singapore Straits Times Index Chart

Like the Hang Seng index, the Straits Times index crossed above its 20 day and 50 day EMAs backed by strong volumes, and has come close to testing resistance from its falling 200 day EMA. Though technically still in a bear market, the strong upward momentum can reverse the down trend quickly.

The technical indicators are looking overbought, which could lead to a pause in the rally or even a correction. The two gaps on the chart formed on Aug 5 and Aug 8 ‘11, and the falling 200 day EMA are probable resistances to a further up move.

Malaysia KLCI Index Chart

Two weeks back, the overbought technical indicators pointed to a correction. The correction was swift, and dropped the KLCI almost 100 points (about 6.5%) from 1465 to 1371 in the space of 5 trading sessions. The recovery was sharp, and in today’s trade the index crossed above the 200 day EMA intra-day, before closing exactly on the long-term moving average.

The MACD is positive and rising above its signal line. Both the RSI and the slow stochastic are in their overbought zones, but both failed to reach new highs with the index. The ROC is positive but has crossed below its 10 day MA. A correction down to the 50 day EMA won’t be a surprise.

Bottomline? The three Asian indices are in the midst of sharp recovery rallies that are hinting at possible trend reversals. The overbought technical indicators are pointing to a pause or  brief corrections next week. The feel-good factor of the Eurozone debt resolution may wane a bit over the weekend after the fine-print is closely analysed. The worst is probably over for the Asian indices, but it may take a while for bullish sentiment to return.