Friday, July 6, 2012

Stock Index Chart Patterns – Hang Seng, Taiwan TSEC, Korea KOSPI – Jul 06, ‘12

Five weeks back, Hang Seng, Taiwan TSEC and Korea KOSPI index charts had dropped back into bear markets after brief forays into bull territory. Tests and possible breaches of their previous lows were expected.

All three indices fell to six month lows on Jun 4 ‘12, but touched slightly higher bottoms and embarked on rallies that have taken them past their 20 day and 50 day EMAs. But none of them have managed to cross above their 200 day EMAs. Technically, the indices are trading in bear markets.

Hang Seng index chart


A month long bear market rally from the Jun 4 ‘12 low in Hang Seng has been characterised by diminishing volumes, which is usually the sign of an unsustainable rally. Note that volumes were higher during the sharper rallies in Oct ‘11 and Jan ‘12. There is a good possibility of the current rally fizzling out near the 200 day EMA.

Technical indicators are bullish. Slow stochastic is inside its overbought zone, but forming a double-top pattern. MACD is positive and above its signal line. ROC is positive, but touched a lower top as the index rose higher in Jul ‘12. RSI is above its 50% level, but falling.

The index has formed a bullish pattern of higher bottoms and higher tops. Only a convincing break out above the 200 day EMA can push bears on the back foot. Bears are likely to put up a fight at the 200 day EMA level.

Taiwan TSEC index chart


Taiwan’s TSEC index is in the midst of a bear market rally. Though volumes have perked up of late, they remain much lower than the volumes seen during previous rallies in Oct ‘11 and Jan ‘12. The rally is likely to face strong resistance from its 200 day EMA.

Technical indicators are bullish, but showing signs of weakening. Slow stochastic is about to fall from its overbought zone. MACD is above its signal line, but barely positive. ROC touched a lower top and has dropped to its ‘0’ line. RSI is still above its 50% level, but falling fast.

Stage has been set for another bear attack.

Korea KOSPI index chart


A bear market rally in Korea’s KOSPI index appears to have come to an end already. The index is facing resistance from its falling 50 day EMA and touched a lower top in Jul ‘12.

Technical indicators are looking bearish. Slow stochastic is above its 50% level, but turning down. MACD is above its signal line, but both are in negative zone. ROC is also negative. RSI touched a series of lower tops while the index was rising, and has dropped sharply below its 50% level.

Bears are regaining control.

Bottomline? Chart patterns of the three Asian indices were in the midst of bear market rallies for the past month. These rallies are coming to an end. Such rallies provide selling opportunities. If you go short in any of the three indices, keep a stop-loss at the 200 day EMA. It may be better to stay away and preserve cash.

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