MARKET RAP Movin' on down the line
By Robert Cutler
MONTREAL - This past week was most remarkable for a strong short-term
divergence between the trends in Shanghai and Mumbai, which have for some time
been together the most volatile and the biggest losers of the major national
Asian equity indices.
These two continued to be among the four most volatile of the week (Mumbai
taking top honors), with Hong Kong and Taiwan in the mix and Australia not far
behind. However, in a strong contradiction of past patterns, Shanghai and
Mumbai moved in different directions, the former strongly down for the week and
the latter moderately up.
Shanghai was again the biggest loser, down 3.2% on the week
and tied there by Hong Kong. But Mumbai was the second-biggest winner, up 2.4%,
beaten only by Taiwan, itself up 2.6% and confirming that cross-listings tie
Shanghai and Hong Kong together closer than either of these is linked to
Taiwan, despite their occasionally being grouped together as the "Greater
China" markets.
Two patterns further confirm this distinction. Shanghai and Hong Kong were both
down an average 2% on each of Monday and Tuesday, and failed to recover for the
rest of the week. Indeed, Shanghai spent Friday between 2,695 and 2,725 and is
now dropping back to the low late in the day, unable to muster a challenge to
the 2,900-3,000 resistance level that has blocked any progress upward for some
time and having failed to sustain the short-term rising-bottoms trend that I
pointed to last week as crucial for the medium-term future. Remarkably, its
high for the week at 2,793 was lower than last Friday's close.
Taiwan, on the other hand, lost 2.7% on Monday and Tuesday combined but made
that back and more on Wednesday. Indeed, the Wednesday behavior was key for the
week to most of the exchanges and, with one or two exceptions, in keeping with
their respective characters as previously outlined in this space. Australia,
Japan, and South Korea were the other main Wednesday winners along with Taiwan,
each gaining back more than it had lost over the first two days of the week.
That was the trend that carried through to the East Asian markets on Wednesday
(with the exception of Hong Kong, which was closed due to a typhoon warning).
But it hardly explains why Shanghai, Singapore, and New Zealand did not respond
in kind, or why Mumbai was unable to follow through on its gains.
India's BSE Sensex 30 index was up 2.6% on Tuesday, closing near 15,000, rather
than Wednesday, because it opened later than East Asia, responding to a drop in
world oil prices and also the strong open that day in Europe. At the Wednesday
open, it gapped up to 15,400, nominally breaking through the 15,100 resistance
that I pointed to on August 2. However, it was unable to hold that level even
though its intraday Thursday high also reached 15,280 (closing at a
statistically equivalent 15,117 on the day), and today, Friday, has meandered
down around the 15,000 level.
This index is now caught between a near-term support level at 14,900 and a
resistance at 15,100, with a medium-term descending-tops trendline set to cut
next week through 15,500, adding eventual pressure to the downside.
The Straits Times Index in Singapore is still caught, as I noted on July 26,
between its support from March at 2,800 on the one hand and, on the other hand,
its descending-tops trendline starting last October, which has guided the upper
bound of the decline since that time. This downtrend limit cuts through the
3,000 level today. It does not help the outlook, either that the STI's real
high for the week at 2,897 on Wednesday was 10 points under last Friday's close
or that this Friday's afternoon session opened at 2,820 and is heading down
towards the 2,800 support. In this sense, the pattern of the Singapore index is
congruent with that of the BSE Sensex, although the timing differs slightly.
The Australia All Ordinaries, despite its impressive gain on Wednesday, remains
mired around 5,000 in the structure that I described on July 12 and July 19,
closely tracked as usual by the S&P/ASX 300. New Zealand has outpaced
Australia over the last month and now comes up to a resistance at 3,425-3,450
that is reinforced, as in the cases of Singapore and Mumbai, by a
descending-tops trendline dating from the last quarter of last year. This
combination represents a very significant resistance in the absence of
underlying fundamental strength, and Wellington's NZX 50 Index Gross has yet
been unable to mount even a strong challenge, as its Thursday high (also high
for the week) could not overcome even 3,415 and the Friday close is down to
3,358.
In conclusion, it is worth noting that the Japanese and South Korean indices
continue to exhibit the relatively moderate, relatively independent,
middle-of-the-pack "personality" that I first pointed to last month (see
Much ado about nothing Asia Times Online, July 26). They are also the
most neutral in percentage change this week, with Tokyo looking to close up
0.6% and Seoul down 0.3%, although the latter is falling dangerously below its
erstwhile support at 1,600 and has to come back up strongly through it next
week or see that level turn into a resistance to the upside.
Meanwhile, Tokyo may have already shown Seoul the way down, closing at 13,168
and, having failed to maintain the 13,600 level (which looks analogous to
Seoul's 1,600), is under further threat from its own descending-tops downtrend,
itself still stronger than analogous trends in other indices, and with the next
support level only at 12,000.
R M Cutler is a Canadian international affairs specialist.
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