MONTREAL - It is a significant week when the Australian All Ordinaries Index is
one of three worst performers on three days of the week and still closes up
6.2% from the previous Friday's close, or the New Zealand 50 Index Gross is the
worst regional index on the week and still closes up 2.1%. This confirms the
bear-market rally call I made at the beginning of December (see
Bear market rally, Asia Times Online, December 2, 2008).
The biggest winner this week, was India's BSE Sensex 30, up 10.9% over the five
days as of midday Friday at 9,945 (after touching an intraday high of 10,127) -
nearly half of the 22.2% advance since its 8,160 on March 9, less than three
weeks ago. Of course this latter figure exceeds the 20% convention that is
used for defining a bull market, but the timeframe is too brief to draw this
conclusion. This index has a short-term resistance between 10,300 and 10,600,
and another in the high 10,000s/low 11,000s.
The Sensex's failure to power through the first of these levels may indicate
some incipient docility before making another run. UBS analysts have predicted,
according to Bloomberg News, that the index will reach 13,500 by next March,
although this is predicated upon the hypothesis a 16-to-1 price-to-earnings
ratio. Coincidence or not, the 12,500-13,500 range is the next significant
resistance after the 11,000s. A rise to that level followed by a significant
move downward would mark the end of a bear market rally, preparing the ground
for subsequent steeper declines.
Hong Kong, Singapore, and Taiwan were the other really big winners on the week,
with the Hang Sang Index up 9.4%, the Straits Times Index up 9.1%, and the
Taiwan Stock Exchange Composite up 8.7%. Readers will know that I consider
India and Singapore to be markets to watch to see to which regional grouping
their movements conform, when other geographical groups (Australasia, Greater
China, Northeast Asia) "disagree" over the main trend of the overall market's
movements. Therefore it is no surprise that Singapore moves this week with
India.
Since May 2008 and especially August 2008, the two principal indices of these
two markets have moved in a very highly correlated fashion. That being so, we
should expect Singapore, closing this week at 1,742 (up almost 20% from its low
of 1,457 less than three weeks ago), to recover in tandem with Mumbai. The
upper bound of Singapore's recovery, however, may be limited to its medium-term
resistance in the low 1,900s, which also marks a long-term resistance first
sketched in February 2004. The differing sectoral structures and export
profiles of the national economies of the two countries would explain why
Singapore will do worse in the medium-term future than India.
By contrast to Hong Kong and Taiwan, the Shanghai Stock Exchange Composite
(SSEC) was the second-worst performer on the week, although this week that
meant that it could still register an advance of 4.2%. The SSEC could be in for
a breather now: since mid-January it has been the weeks' best-performing index
no less than six times but also its worst-performing index twice. This week it
has hesitated at the 2,400 level that I have several times pointed at as
marking the upper bound of the expanded 1,700-2,400 trading range around its
narrower 1,950-2,250 trading range. Its intraday high on Friday was 2,393.
The euphoria over the earlier-announced stimulus package may be wearing off.
Morgan Stanley has advised its clients, according to Bloomberg News, that,
whatever the results of the stimulus package, corporate earnings will not be
lifted out of their increasingly deep doldrums.
The Seoul KOSPI gained 5.5% on the week (still the third-worst performance!) to
close at 1,235, up 31.7% from its low on last October 20, while Tokyo's Nikkei
225 was up 8.6% since last Friday's close at 8,627 (but down from a weekly and
intraday high of 8,843), and up 20.4% from its low at 7,162 on last October 27.
The KOSPI is now near the top of its short-term trading range as well a
medium-term resistance from last October and long-term resistances from
September-October 2005 and May 2006, after important support from 1999-2000
kicked in during the last quarter of 2008 and prevented further declines beyond
the aforementioned October 20 low.
With the SSEC, the KOSPI suggests the beginning of a cooling-off period at
least for those indices that have lately been the hottest. It is possible that
the Nikkei may peak in the near term between 9,100 and 9,600 before taking a
breather.
R M Cutler (http://www.robertcutler.org) is a Canadian
international affairs specialist.
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