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Friday, November 11, 2011

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

Jakarta Composite Index Chart

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Three weeks back, the Jakarta Composite index rallied strongly to climb above the 200 day EMA after forming a double-bottom bullish reversal pattern. But the bears started to sell immediately, and the index dropped below the long-term moving average. The index had retraced just about 50% of the fall from the Aug ‘11 peak of 4196 to the Sep ‘11 trough of 3218, and looked ready to drop back into a bear market like many of its Asian neighbours.

But the Jakarta Composite has not been one of the best performers among Asian indices for nothing. A renewed effort by the bulls pushed the index above the 200 day EMA to an intra-day high of 3875 on Oct 28 ‘11 – retracing 67% of its fall. Technically, that reversed the short bear phase, which was further confirmed by the 50 day EMA bouncing off the 200 day EMA and the 20 day EMA climbing above the 50 day and 200 day EMAs. That’s the good news.

The bad news is that the recent rally was accompanied by decreasing volumes. The index appears to be struggling to cross the Oct 28 ‘11 top, and has formed a small bearish double-top. The technical indicators are showing some weakness. The slow stochastic failed to re-enter the overbought zone, and is on its way down. The MACD is positive and above its signal line, but has started sliding. The ROC bounced off the ‘0’ line but is again falling down. The RSI is rising above the 50% level, but may be forming a bearish head-and-shoulder pattern.

The bulls haven’t conclusively regained control yet. However, since the index is technically in a bull market, dips can be used to add selectively.

Korea KOSPI Index Chart

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The Korea KOSPI index rallied strongly to cross the 200 day EMA on an intra-day basis on Oct 28 ‘11, supported by rising volumes. But the bulls ran out of steam, as the long-term moving average provided strong resistance to further up moves.

The bulls appeared to throw in the towel as yesterday’s gap down opening pushed the KOSPI below all three EMAs and back into a bear market. Today’s 50 points recovery was partly due to short covering and hasn’t really changed the overall sentiment.

The technical indicators are turning bearish. The slow stochastic has dropped below the 50% level. The MACD is positive, but below its signal line. The ROC has fallen sharply into negative territory. Only the RSI is looking bullish by rising above its 50% level, but may be in the process of forming a bearish head-and-shoulders pattern.

Time to sell on rises.

Taiwan TSEC Index Chart

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The Taiwan TSEC index is the weakest of the three Asian indices. Its Oct ‘11 rally failed to reach anywhere close to its falling 200 day EMA. Yesterday’s gap down day has pushed the index firmly down into a bear market.

The slow stochastic has broken down from a clear head-and-shoulders pattern, though it hasn’t quite fallen below the 50% level. The MACD is positive, but below its signal line. The ROC has entered negative territory. Only the RSI is giving a contrary signal by rising above its 50% level. A test of the Sep ‘11 low may not be surprising.

Bottomline? Chart patterns of the Jakarta Composite, the Korea KOSPI and the Taiwan TSEC indices appear to have completed their recent rallies. The Jakarta index is fighting to remain in a bull market. No such pretenses are being shown by the KOSPI and TSEC indices. Both have reverted to bear markets. This is not a time to be brave. Conserve your cash.

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