MONTREAL - Asian markets continued the
calm that characterized the previous five trading
days, with little to disturb the golf or other
pleasures made possible on Thursday by the
enforced May 1 holiday break that closed all major
Asian exchanges with the exceptions of Australia
and New Zealand. Shanghai was closed also on
Friday. Given the relative tranquility, each major
equity market generally followed its own path.
The exception to the generalized
heterogeneity of the Asian markets came on Friday,
when they all extended the
Thursday
New
York rally on the basis of the strengthening
dollar, some less-than-disappointing profit
reports, and economic indicators that fell short
of being disastrous. The main Wall Street indices
had weakened late Wednesday afternoon following
earlier gains that day in the wake of the expected
quarter-point Fed rate cut announced at the end of
their April 29-30 meeting.
Up until the
Friday bump, no major Asian equity exchange index
had volatility through the week greater than 2% -
some were even within a 1% range all week - with
the exception of Mumbai's BSE Sensex 30 (and its
broader national counterpart, the Nifty). The
Friday bump was clearly a response to Wall
Street's Thursday (particularly since Shanghai was
closed), itself a follow-through of the Wednesday
response to the Fed interest rate cut and related
announcement that afternoon. So it is justified to
spend a little more time on the New York action
than is customary in this space.
The main
New York indices are all at the top of the trading
ranges they have inhabited since mid-January. To
give but one example, the S&P500, whose recent
fluctuations have established a range from 1,275
to 1,410, closed Thursday at 1,409.34. In fact Dow
theory, based upon fluctuations of the Dow Jones
Industrials and Transportation indices, might even
point to an upward breakout by the former from its
own established trading range.
Even
short-term momentum indicators are favorable to
such a development. Although Wall Street's volume
did increase throughout the week to just under 4.5
billion shares traded on Thursday (significantly
above the 3-3.5 billion range that has been common
for much of this year), nevertheless this is still
not a blow-out indicating an essential reversal of
investor sentiment. Indeed, the recent pattern of
the NASDAQ index suggests just another near-term
top.
Given this international context, the
absence of volatility in the Asian equity markets
acquires a different significance. It reflects
first of all the fact that some of the more
important Asian markets have already achieved
their own internal stability, regardless of what
happens in New York. This is not to say that they
are "decoupled", even if, on the basis of domestic
economic considerations, certain Asian markets
such as India are likely more so than many
European markets.
In India, both the BSE
and the Nifty look to finish the week up between
3% and 4%, also importantly tracking each other
rather more closely this week than is usually the
case. In alternation, they have each omitted to
confirm the other’s break below important
technical supports (15,800 for the BSE and 4,600
for the Nifty), as noted in earlier columns. With
the current week's advance, the Nifty is now on
the verge of breaking out upwards from the
descending trendline formed by the January and
March peaks: a structure completed by the Sensex
two weeks ago.
In China, the Shanghai
index finished its shortened week near 3,700 after
spending the entire week above 3,450. This means
that it has not yet filled in the gap-up from the
previous week (when it jumped from 3,280 to 3,550
between April 23 close and April 24 open) but also
has at least not collapsed back down after
bouncing off the extremely important technical
support just under 3,000. This behavior would seem
to anticipate confirmation next week of the
breakout above the 3,600 resistance dating from
May-June 2007, after which the next major
technical hurdle is at the 4,200 level.
The Nikkei 225 closed out the week at
14,049, breaking and staying above the mild
resistance at 14,031 established nine weeks ago.
However, volume over the past three weeks has
actually been weaker than earlier this year.
Nevertheless, a technically beautiful upward
trendline is established since mid-March, and the
next charted resistance is only at the
14,900-15,000 level. However, the market will be
stronger when it gets there, if it would spend
some time backing and filling on its way.
This week, markets other than India,
China, and Japan do not require more attention in
this space than they received in the head
paragraphs. They were all exceptionally docile up
until Friday, when without exception they profited
from the Thursday rally in New York to bump up
another 2% or so. All in all, the stability is in
fact reassuring.
R M
Cutler
(rmc@alum.mit.edu) is a Canadian international
affairs analyst.
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