MONTREAL - Asian equity markets were down sharply last week, and volatility was
very highly (0.91) correlated with the extent of individual indexes' move. This
confirms a return to risk-aversion that threatens further losses. There were no
sub-regional patterns to speak of, which signifies that the moving forces for
the volatility came preponderantly from outside Asia rather than from within.
The Australian All Ordinaries Index was the third-most volatile and
second-largest loser of the indexes reviewed here. Having begun the previous
Friday to crash through several supports in the 4,200s, it continued on that
course Monday and Tuesday. Not even looking back, it declined every day of the
week for a total loss of 4.4%, finishing Friday at 4,058.
It is now at the level of a long-term (based December 2009) and
short-term (based June 2011) potential support but one that has never been
tested before on either scale. Significantly, this is also the level of the
declining-tops second-fan (based November 2007). All short-term technical
indicators worsened over the course of the week to the point where the index is
technically almost oversold.
The Northeast Asian markets did not fare as poorly. The Nikkei 225 in Tokyo was
the second-least volatile with the second-least bad performance. Still, it lost
2.6% to 8,160. It too declined every day of the week, with the exception of
Wednesday when it was closed. The Nikkei's momentum improved slightly towards
the end of the week but remained strongly negative, along with most other
It has dropped below its post-2007 second-fan, and it is difficult to find any
firm technical support above the 7,600s, below which only the interval around
7,100 offers any backstop. Despite the Nikkei's relatively mild performance,
its short-term technical indicators are barely better than anywhere else.
In Seoul, on the other hand, the KOSPI exhibited median performance and
near-median volatility. In a week such as the one just finished, however, that
of course is still unenviable. It means, in the present instance, a loss of
3.4% to 1,776. The index is now resting on the triple-top (based September 2009
- June 2010) of its lower post-crisis trading range. Short-term technical
indicators are not quite so bad as elsewhere, but this also means the index is
further from being oversold.
The Greater China complex ran the gamut. Taiwan was the most volatile and
largest loser, Shanghai the least volatile and least loser, with Hong Kong
between on both counts. In Taipei, the TSEC/Taiex lost 6.2% to 6,785,
gapping-down on Monday below its long-term supports around 7,200 (based
February 2010), 7,050 (based May-June 2010), and 6,950 (based June 2009). There
remains a possible very long-term support around 6,450 (based April 2002), but
also there is a still-unfilled gap-up to that level dating from May 2009.
Short-term indicators are poor and the index is correspondingly close to being
In Hong Kong, the Hang Seng Index closed at 17,689, down 4.3% on the week, the
third-worst performance in Asia but on median volatility. It failed to confirm
the breakout earlier this year above a long-term descending-tops downtrend
(based May 2008) resistance. There is a potential long-term support (based July
2009) at the present level although it is not very strong in addition to being
unconfirmed. There is a short-term support at 16,250. Like the Australian
index, the Hong Kong one is now testing its post-2007 descending-tops
second-fan as a potential support.
In Shanghai, the SSEC fell 1.5%, which was the best performance of the week and
also at the least volatility, to close at 2,380. The chart of this index
continues to show are structural congruencies with both the Hang Seng and the
Australian All Ordinaries, although the SSEC has already penetrated its
long-term descending-tops second-fan to the downside. It is in fact lying right
on top of a long-term static support range (based February 2009) that
putatively may extend down into the 2,320s. Short-term technical indicators are
poor although not the worst in the region. The index is not near to being
In Southeast Asia, Singapore's Straits Time Index fell 3.2% to 2,644 on
near-median volatility and worsening short-term technical indicators throughout
the week. It is now struggling to find support at the level of a very long-term
ascending-lows uptrend support (based August 1998), but which it violated
already at the end of 2008 and start of 2009. Also there is, however, a
confirmed, apparently strong very long-term resistance at 2,500.
Indonesia's JCI worsened almost as much, losing 3.1% to 3,637. The index is now
testing a triple-top support from late 2010 and early 2011. Short-term
technical indicators are better than elsewhere in Asia but still unfavorable.
Finally, the BSE Sensex 30 in Mumbai lost 4.1% to 15,695, entirely ignoring a
significant short- and long-term support at 16,000. There is a possible support
to the downside around 15,200, but it is hard to find anything else very
substantial above 13,500. Short-term technical indicators are, like nearly
everywhere else in Asia, unfavorable.
The dollar-denominated MSCI Asia Pacific Index closed at 108.95, down 4.6% on
the week, while the euro-denominated FT Asia Pacific Index closed at 182.97,
down 2.7%. The former is now at the lower bound of its lowest trading range
since recovering from the 2007-08 shock. The latter has a weak long-range
support at about the present level and a rather strong one established as a
plateau through nearly the whole second half of 2009, in the mid-170s. The
overall confluence of patterns in these and also the national indexes suggests
the possibility of a short-term bounce from overselling but longer-term
Dr Robert 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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