MARKET RAP Much ado about nothing
By Robert Cutler
MONTREAL - This week was generally an "up" trading period for Asian equities,
even a strong one, and while none of the regions' main markets broke through
any really significant medium-term "strategic" resistances in what was five
days of roller-coaster volatility, a few rebounded through more recent,
short-term "tactical" resistances.
The week's movements can be discussed in terms of the three major groups, and
their subgroups, that I identified a few days ago (see
Forks in the markets, July 23, 2008).
Among the generally less volatile and less "damaged" exchanges, New Zealand
was, in contrast to Australia, able to hold onto more
of its gains for the week on Friday. It dearly needs to continue this strength,
as, although on Thursday it found its May 2005 support at 3,001 and has
rebounded now into the mid-3,200s, the next support down after the 2,900-3,000
level is far from clear. Australia continues at least to be stuck in the
4,900-5,100 range that I pointed out
last week. On the upside, it also would next have a May-June 2006
resistance in the 5,180-5,250 range to overcome, but it has better further
support than New Zealand on an eventual downside.
Mumbai and Shanghai were by geometric statistics once more the most volatile of
all, although Tokyo's arithmetic intraweek range was greater than Shanghai's.
Mumbai's BSE Sensex 30 gave the most demonstrative example of the width of
Asian fluctuation, rising no less than 20.3% between its close on Wednesday,
July 16 and its high seven days later a half-hour after the open.
Indeed, from Monday through Thursday this week, no exchange lost more than 0.5%
on any given day (except Mumbai on Thursday, down 1.1%). Nevertheless, this
midweek-to-midweek run vaulted the Sensex over resistances at 13,400 and
especially 14,100 that had range-bound it, although it has rather clearly hit
its head at 15,100 and will probably retest 14,100 this time as a support
level. The Nifty's track on this dynamic was close in the Sensex's footsteps.
On the present Monday-Friday week, the Sensex is up "only" 5.2% as of lunch
local time, this being due entirely to the 5.9% move on Wednesday, which was
exclusively a reflex reaction to a national political event. (The minority
government of Prime Minister Manmohan Singh's United Progressive Alliance had
just won a confidence vote in parliament over its long-debated nuclear
cooperation treaty with the US, despite loss of support from the Left Front,
which had been providing its parliamentary majority.) Friday, however, opened
with a gap-down and shares have since declined half the level of the gap-up
with which trading opened on Wednesday.
Shanghai made yet another unsuccessful run this week at its resistance at 3,000
- it did not even get above its 2,911 Thursday afternoon high for the week and
closed Friday in the mid-2,800s, still depending precariously on a support
formed in the first half of 2007 to avoid collapsing to the 2,000-2,100 range
that would be the next stop down.
While Shanghai and Mumbai were again the most volatile markets in the region,
Taiwan and Seoul were the biggest gainers, up respectively 6.1% and 5.8% on the
week. Nevertheless, they too gapped-up at the Wednesday open, and Taiwan closed
on Friday at that level of its Wednesday open, which it looks to test again
next week, while Seoul is back down below its Wednesday close.
Neither move this week represents a strategic recovery to significant new
levels. Indeed, they are failures to break through important resistances, Seoul
from January-March this year in the late 1,600s and Taiwan in the low 7,400s
from May 2006 (although the good news for Taiwan is that it is so far
confirming important support around 7,000 from 2006, 2004 and 1998).
This week Singapore, true to form, matched the Australia-New Zealand group on
measures of volatility and overall change, up 2.5% on the week but barely
surviving the first challenge of its near-term support at 2,800 from mid-March
this year and now coming up to an important test from the downside against its
descending-tops trendline from October last year and May this year. In the
coming week, that trendline will cut through the range around 3,050; Singapore
was down this Friday from the open and ended hanging on to the 2,920 mark.
Tokyo continued its style as a sort of "middle-of-the-pack" market in its Asian
environment. After recovering from the 12,200-12,400 range last March, it has
continued to test its September-October 2005 support around between 13,200 and
13,500, first from the downside, then from the upside, and now stuck there in
the middle. It has an two important descending-tops tests coming up, the first
one cutting next week through a level around 13,900 in a pattern begun last
August, and then sooner or later another from the initial top in July last
year.
Finally, Hong Kong, which closed the week in the low 22,600s after gapping up
and then back down to the level of its Monday open, as if the Wednesday and
Thursday advances never happened. This is ominous insofar as the Monday open,
indeed the entire week, itself represents a gap-up from last Friday's close in
the high 21,800s. That close reconfirmed the Hang Seng's important support at
that level, but next month will come (in the same pattern as Singapore, its
group-mate that I pointed to mid-week) a test against a descending-tops
trendline (October 2007 and May 2008).
Because this is a descending trend, the level at which it will be tested
depends on exactly when that test it comes, but during August it will slice
through the 23,600-24,100 range. We should not expect much definite news from
the Hang Seng in the near future, because it will encounter a lot of noise in
the high 23,000s whenever it gets there and will probably retest 21,800 again
after that.
R M Cutler (http://www.robertcutler.org) is a Canadian international
affairs specialist.
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