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Friday, October 7, 2011

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Oct 07 ‘11

Jakarta Composite Index Chart

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The Jakarta Composite index chart pattern was like a beacon of light amidst all the gloom and doom prevailing in Asian as well as global stock markets, reaching its all time high of 4196 on Aug 2 ‘11. But that particular day’s trading formed a ‘reversal day’ pattern (slightly higher high but a lower close) that marked the end of the phenomenal 29 months long bull run.

A ‘reversal day’ pattern usually marks the end of an intermediate up (or down) move, but some times it can signal a reversal of a major trend. In the latter case, it often is an integral part of a larger trend reversal pattern (like a head-and-shoulders or a double-top). What is unusual in the Jakarta Composite chart is that the trend reversal came out of the blue.

Note that during the last leg of the bull run in Jul ‘11, the ROC, the slow stochastic and the RSI failed to reach higher tops with the index. The negative divergences did point to a correction. The ‘panic bottom’ on high volumes in Aug ‘11 was followed by a sharp bounce. But the bear attack in Sep ‘11 breached the Aug ‘11 low, proving the maxim that “panic bottoms seldom hold”.

The correction of 23% from the Aug ‘11 peak, and the break down below the 200 day EMA has signalled a bear market. The imminent ‘death cross’ of the 50 day EMA below the 200 day EMA will confirm it. All four technical indicators are looking bearish. The index may seek much lower levels.

Korea KOSPI Index Chart

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Two weeks back, I had made the following observation about the Korea KOSPI index chart pattern: “… the Aug 9 '11 low of 1685 is under serious threat of being broken”. The index dropped to a new low of 1644 on the very next trading session on Sep 26 ‘11. Even that low may not hold much longer, as the index is sliding downwards with up moves getting resistances from the falling 20 day and 50 day EMAs.

The technical indicators are bearish. The slow stochastic and the RSI are both below their 50% levels. The MACD is negative and below its signal line. The ROC is also negative. The KOSPI continues to slide deeper into bear territory.

Taiwan TSEC Index Chart

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The Taiwan TSEC index chart dropped to a new intra-day and closing low of 6877 on Sep 26 ‘11, only to bounce up above the 7200 level – where it faced resistance from the falling 20 day EMA. The index once again dropped below 7000 to a slightly higher intra-day low 6890 on Oct 4 ‘11. But the today’s close at 7212 meant a marginal 13 points loss on a weekly basis.

The technical indicators are bearish, and not offering the bulls much hope. After the sharp gap-down fall in Aug ‘11, the index seems to have settled into a more gradual down move. All three EMAs are falling together – a clear sign of a bear market.

Bottomline? Chart patterns of the Jakarta Composite, the Korea KOSPI and the Taiwan TSEC indices clearly show that the Asian indices are in a firm bear grip. Periodic rallies are being used by the bears to sell more. Stay on the sidelines till the selling abates.

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