MARKET RAP On the cusp, but of what?
By R M Cutler
MONTREAL - All the main Asian equity indices were up this shortened week - only
Australia, Japan and New Zealand were open on Friday. Tokyo was closed also on
Wednesday, and Mumbai shut its doors for a long weekend after the Wednesday
session.
The week was nevertheless a significant one during a crucial period for world
stock markets and Asia's in particular. Indicative is that the MSCI Asia
Pacific Index is now near 91, right below the 92-94 level that marks the upper
bound of its trading range since last November.
The three Greater Chinese exchanges all closed up with moderate to good gains,
but leaving the situation unresolved in Hong Kong
and Taiwan - this despite the latter's enormous 6.7% gain on Thursday on the
back of new agreements to permit mainland investment in the island. The Taiwan
Stock Exchange Composite (TSEC) was down earlier, so that it closed out with a
much more modest 1.9% gain on the week at 5,993.
The significant number for the TSEC is the top of its medium-term resistance
interval, at 6,133 from last September 24. The index has already entered the
subtending zone of resistance that reaches down to 5,790. This range includes
the key level of 6,080 (a multiple of 1.382 times the October 28 low of 4,400
that very likely marks the end of the earlier leg down).
There is no pertinent descending-tops trend line to constrain the TSEC at this
level, but the index has already once failed to breach the resistance, opening
on April 17 just under 6,070 but falling to close at 5,755 the same day. That
move marked the end of the up-trend that had lifted it from 4,426 over six
weeks from the beginning of March, a move of 30% in six weeks. By rights, the
index should now want to correct that move, but only the chart will tell us
whether that correction may descend to any of various supports terraced down to
4,978, or whether it will work sideways before trying to break out to the
upside.
The Hang Seng Index in Hong Kong is in a different situation but no less
crucial. Closing the week up 1.7% at 15,521, it is now near the top of the
trading range it has occupied since mid-October. It has already twice failed to
break out of this range to the upside and still has an unfilled gap up to
15,998 from October 15.
Twice in mid-April, the Hang Seng opened at or near that level but each time
failed to surmount it even with the intraday high. The closest it has come to
filling that gap is the April 15 close at 15,669, which marks the short-term
resistance. Technical indicators (for example, relative strength, parabolic
stop-and-reversal) rule in the possibility of an upside breakout; they do not
guarantee it.
The Shanghai Stock Exchange Composite (SSEC), as I suggested last week it
should do, successfully tested its 2,400 support after breaking out to the
upside from its medium-term 1,700-2,400 trading range. Wednesday saw an
intraday low of 2,372, but the index closed above 2,400 every day of the week
(save Friday when the exchange was closed). The SSEC closed on Thursday up 1.2%
for the week at 2,478.
There is nothing to prevent the SSEC from testing this support again, despite
decent technical indicators, particularly since it has so far been unable to
confirm its conquest, earlier this month, of the medium-term resistance at
2,524, indeed despite actually closing above that no fewer than four times in
the course of seven days. The next interval of resistance after that level
stretches between 2,650 and 2,900.
I have spent so much time here on the Greater China exchanges because they are
at crucial junctures for Asian and world equities more generally. Last week
(see Critical
junctures abound, Asia Times Online, April 25, 2009), I discussed
India's BSE Sensex 30 in similar detail. In the current week the Indian market
was open only on the first three days of the week and closed out up 0.7% at
11,403 without filling the gap up to 11,483 left over from mid-October despite
an intraday high on Monday of 11,492.
The technical indicators for the Sensex nevertheless finished the week on a
positive note, the index itself is on the cusp of confirming a breakout from a
major descending-tops trend line, and the broader-based Nifty is nothing but
favorable. Yet again only the chart will tell us whether these favorable
indicators will be validated, and even as soon as early next week.
Australia and New Zealand are both making runs at upside breakouts from their
medium-term trading ranges. The New Zealand 50 Index Gross hit an intraday high
on Thursday of 2,765 but fell back after that to close the day at 2,741 and
then the week at 2,717, still up 3.2% for the week but significantly below the
2,787 resistance at the top of the trading range attained January 14.
The Thursday intraday high for the New Zealand index marked no less than the
fifth time this year that the index has reached up into the 2,764-2,770
interval without being able to follow through. The long-term descending-tops
downtrend from late 2007 notably passes through this level during the month of
May. Resolution in one way or the other will come sooner rather than later.
The Australia All Ordinaries Index, for its part, is this week challenging a
secondary long-term descending-tops downtrend initiated in mid-May 2008. This
downtrend has already rebuffed one short-term attempt in mid-April to surmount
it. So this is the index's second run. It was stopped at 3,728 two weeks ago,
the exact level defined by its January 7 recovery from the low last November.
Its Friday close at 3,731 (up 2.1% on the week) is almost exactly on the trend
line.
That is by no means to say that Monday will resolve the matter, but again
resolution should come sooner rather than later. The Standard & Poor's ASX
200 Index closed the week at 3,761 also almost exactly on its descending-tops
downtrend congruent with that just described for the All Ordinaries. For both
indices, the technical indicators are so evenly divided as to be neutral in the
aggregate, and even the values of individual indicators are so mild as to be
indistinguishable in practice from being neutral.
Australia, New Zealand, and Singapore all closed up together for the first time
in a very long time, although Singapore's Straits Times Index was unremarkable
this week, and my remarks on it from last week require no emendation.
In Tokyo, the Nikkei 225 closed up 1.4% at 8,874, still solidly within its
medium-term trading range, which extends up to 9.229 with a further medium-term
resistance in the low to mid-9,500s.
The market in Seoul is more interesting and intricate. The KOSPI, with a close
on Thursday at 1,369 to end its abbreviated week, has now almost filled the gap
from last October 14-15 that had an upper value of 1,367. In this it joins the
TSEC, although the latter did so in a more dramatic fashion (for background,
see Critical
junctures abound, Asia Times Online, April 25, 2009).
However, the KOSPI leaves a new gap between its Wednesday close and its
Thursday open from 1,338 to 1,354. This cannot be considered trivial, because
its lower range in the high 1,330s overlaps with part of the now-filled gap
from mid-October. Technical indicators for the KOSPI are, as in Australia and
New Zealand, somewhere between neutral and nondescript.
Almost all markets habitually reviewed here are now percolating near the upper
bound of a medium-term trading range and/or challenging a long-term
descending-tops trend line or other major technical support or resistance. It
is an understatement to say that in the charts we are effectively face to face
with a major inflection point one way or the other or, more properly, major
inflection points (in the plural) since, to paraphrase Leo Tolstoy, all happy
markets are alike, but every unhappy market is unhappy in its own way.
Dr R M Cutler (http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and The University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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