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Friday, October 21, 2011

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Oct 21 ‘11

Jakarta Composite Index Chart

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Two week’s back, the Jakarta Composite index chart was on the verge of slipping into a confirmed bear market. The ‘death cross’ seemed imminent, and the bearish technical indicators were pointing to a deeper fall. But the index formed a double-bottom pattern, which is also visible on the slow stochastic and ROC indicators.

A sharp recovery on very good volumes pushed the index briefly above its 200 day EMA, and prevented the 50 day EMA from falling below the long-term moving average. The recovery may be short-lived for two reasons.

First, the index corrected 52% of its fall from the peak of 4196 (on Aug 2 ‘11) to the low of 3218 (on Sep 26 ‘11), which is close to the Fibonacci retracement level of 50%. Only on a retracement of 61.8% or more can we be sure that the down trend has reversed. Second, the index is once again trading below its 200 day EMA, and has formed a bearish pattern of lower tops and lower bottoms.

Positive divergences in the technical indicators – which reached higher tops as the index touched a lower top – may lead to a rally above the 200 day EMA again. However, the down trend line (connecting the Aug ‘11 and Sep ‘11 peaks) and the Sep 9 ‘11 intra-day high of 4028 have to be crossed convincingly before the bulls can regain control.

Korea KOSPI Index Chart

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The Korea KOSPI index withstood three consecutive tests of the Sep 26 ‘11 intra-day low of 1644, rallied sharply past its 20 day and 50 day EMAs. But there was no volume support as the index crossed above its 50 day EMA, and the rally ran out of steam. The index formed a ‘reversal day’ pattern after touching the Sep 21 ‘11 top of  1870, and dropped to its 20 day EMA.

The technical indicators are weakening. The slow stochastic is about to drop from its overbought zone. The MACD is above its signal line, but sliding down in positive territory. The ROC is also positive, but falling down. The RSI turned back before reaching its overbought zone. But positive divergences in all four indicators – which reached higher tops as the index touched a lower top – may lead to a rally above the 50 day EMA once more.

Taiwan TSEC Index Chart

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The Taiwan TSEC index chart looks the weakest among the three Asian index charts. It formed a double-bottom, but the rally fizzled out before it could test its falling 50 day EMA. The index is trading below all three EMAs, which is characteristic of a bear market.

The technical indicators have weakened. The slow stochastic has started falling after touching the edge of its overbought zone. The MACD is above its signal line, but is negative. The ROC is positive, but moving down. The RSI is sliding towards the 50% level. Note that the technical indicators are showing positive divergences. The index may attempt to reach its 50 day EMA once again.

Bottomline? Chart patterns of the Jakarta Composite, the Korea KOSPI and the Taiwan TSEC indices are still in the grip of bears. All rallies are being used as selling opportunities. Hold on to your cash, and wait for the selling to subside.

2 comments:

VIPAN said...

Have u checked the charts of Shanghai …. yesterday i think it made multiyear low and broken 2011 and 2010 lows and gone to very close of 2009 lows !!!!! ..It looks like fallen dragon….Is BRIC’s story coming to end which lasted for almost 10 yrs now….. Is this the shape of things to come in india too…..

pls enlighten us with ur comments on this..

Yesterday results of few companies and commentry of managements made me feel real jittery…I think all the boarders here shd be very careful …… what is ur advise as we all have stocks also in portfolio.

Regards,
Vipan Gupta

Subhankar said...

The Shanghai Composite index has been in a clear down trend for the past 6 months. There are many questions being raised about its reported growth figures.

China is trying to tackle inflation much like the RBI is trying to do in India. If their ravenous appetite for commodities cool off, it will have global implications.

No need to feel jittery. Take a good look at your portfolio and hold on to your fundamentally strong stocks. Add more if the market falls below support. Use rallies to get rid of junk.