Stock Index Chart Patterns – Hang Seng, Taiwan TSEC, Korea KOSPI – Feb 24, ‘12

Chart patterns of the Asian indices are in various stages of recovery from their 2011 lows. Technically, only the Korea KOSPI chart has re-entered a bull market. The Hang Seng chart is about to join the Korean index in bull territory. The Taiwan TSEC index is still struggling to get out of a bear hug.

Hang Seng index chart

The Hang Seng index has climbed almost 35% from its Oct ‘11 low of 16170, and closed the larger of the two downward gaps formed on the chart in Aug ‘11. It has sailed past its 200 day EMA and is correcting a bit after almost reaching the 22000 level. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will confirm a return to a bull market. Note the bullish pattern of higher tops and higher bottoms from the Oct ‘11 low.

Negative divergences are visible in all four technical indicators – three of which touched lower tops as the index rose higher, while the MACD remained flat. The ongoing correction may continue a bit longer. The dip can be used to add selectively.

Note the head-and-shoulder patterns that formed on the ROC, RSI and slow stochastic during Oct-Nov ‘11 even though such a pattern isn’t visible on the Hang Seng chart. The subsequent correction over the next two months turned out to be a consolidation within a symmetrical triangle.

The upward break out from the triangle in early Jan ‘12 was accompanied by increasing volumes, which validated the break out. However, volumes have been sliding ever since the index crossed above its 200 day EMA – raising questions about the sustainability of the rally.

Taiwan TSEC index chart

The Taiwan TSEC index has risen 21% from its Dec ‘11 low of 6609 and past its 200 day EMA on strong volumes, but is facing resistance from the lower end of the large gap formed on the chart in Aug ‘11. The 20 day EMA has crossed above the 200 day EMA, but the 50 day EMA is still a couple of hundred points below the long-term moving average.

The gap on the chart needs to be closed before the index can re-enter a bull market. The technical indicators are suggesting that may not happen in the near term. The slow stochastic is inside its overbought zone, but has started falling. The MACD is positive and touching its signal line, but has also started falling. The ROC is positive but sliding towards the ‘0’ line. The RSI has dropped sharply from its overbought zone.

A correction to the rising 20 day EMA is likely.

Korea KOSPI index chart

The Korea KOSPI index chart has gained almost 25% from its Sep ‘11 low of 1644 and is trading well above its 200 day EMA. The lower of the two gaps on the chart, formed in Aug ‘11, has been closed. The 50 day EMA has crossed above the 200 day EMA. The rally has gained strength during Feb ‘12 – as indicated by the rising volumes.

However, all is not well. All four technical indicators are showing negative divergences by sliding down while the index was rising. A correction has started, and may continue a bit more. The dip can be used to add.

Bottomline? The chart patterns of the Asian indices are in the process of recovering from their brief bear markets. The bulls still have some work left. The bears are unlikely to give in easily. The doomsday scenario painted by many - thanks to the sovereign debt problems in the Eurozone – may not turn out to be as bad as expected. Use the ongoing correction/consolidation to buy selectively.

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Dec 23 ‘11

In my previous analysis of the chart patterns of the Jakarta Composite, Korea KOSPI and Taiwan TSEC index charts, I had made certain observations about the likely moves of the three indices. As it so happened, all three of my ‘guesstimates’ turned out to be correct.

I may pat myself on the back about my ‘predictive’ capabilities – but the fact is that chart patterns can’t really be predicted in advance. At best, one can make educated guesses about likely occurrences based on the way similar chart patterns played out earlier. Some times, patterns turn out exactly as you expect them to; at other times they make a complete fool of you.

Many put the blame on technical analysis as a decision making tool for investing. The fault usually lies with the analyst who boldly ‘predicts’ outcomes which don’t occur. It is necessary to look at several different technical indicators to arrive at a logical conclusion. Still, charts can ‘behave’ in radically different ways because ultimately an index chart pattern represents the collective greed and fear of market participants.

Jakarta Composite Index Chart

My observation about the Jakarta Composite index chart two weeks ago was: “Expect some more sideways consolidation.” The index consolidated between 3700 and 3800 for two weeks, dropping below the 3700 level and the 200 day EMA once on an intra-day basis. The 3800 level was crossed four times on intra-day basis, including the last three days of the current week. But the index failed to close above the 3800 level even once – indicating that the bears are defending it strongly.

Technically, the index is in a bull market and showing signs of wanting to move higher. All three EMAs have started moving up. Today’s intraday high of 3822 is the highest level the index has touched in more than a month. Crossing above the Oct ‘11 top of 3875 will form a bullish pattern of higher tops and higher bottoms.

The technical indicators are suggesting mildly bullish conditions. The slow stochastic is about to enter its overbought zone. The MACD is above its signal line and barely positive. The ROC has just climbed into positive territory. The RSI is above the 50% level, but falling towards it. An interesting tussle is expected between the bulls and bears over the next couple of weeks, with the bulls having a slight edge.

Korea KOSPI Index Chart

The Korea KOSPI index chart was expected to fall below its 20 day and 50 day EMAs. It fell a little further to touch an intra-day low of 1750 on Mon. Dec 19 ‘11 – slightly lower than the Nov ‘11 low of 1767, forming a bearish lower tops and lower bottoms pattern. The index is trading below its falling 200 day EMA and is in a bear market.

The bulls are not quite out of the game yet. Note the positive divergences in the slow stochastic and the RSI, which touched higher bottoms as the index dropped lower. That could lead to another attempt by the index to cross above its 200 day EMA – and probably another failure.

Despite the positive divergences, the technical indicators are looking weak. The slow stochastic is below the 50% level. The MACD is negative and below its signal line. The ROC is also negative, but trying to climb up. The RSI is below its 50% level.

Taiwan TSEC Index Chart

The Taiwan TSEC index was expected to test and fall below its Nov ‘11 low, and it showed no hesitation in doing so as it dropped to a low of 6609 on Mon. Nov 19 ‘11. Note that all four technical indicators touched higher bottoms as the index dropped lower. The combined positive divergences led to a sharp upward bounce and the index had a weekly close above the 7000 level.

In spite of the sharp bounce, the technical indicators remain bearish. That means the falling 50 day EMA may stall the upward move. The slow stochastic and the RSI are below their 50% levels, but rising. The ROC is about to cross into positive territory. The MACD is above the signal line, but negative.

The index is trading well below its 200 day EMA, and is in a bear market.

Bottomline? The Jakarta Composite index is technically in a bull market, but still struggling to keep the bears away. The Korea KOSPI and the Taiwan TSEC indices dropped below their Nov ‘11 lows and are trying to rally. Investors can very selectively look for value in beaten down stocks. It may be more prudent to wait till the indices cross above their respective Oct ‘11 tops.

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Dec 9 ‘11

Jakarta Composite Index Chart

Two weeks back, the Jakarta Composite index was under a bear attack and had slipped below the 200 day EMA. The technical indicators were looking weak and the index was expected to fall some more. But a ‘reversal day’ pattern (lower low, higher close) on Nov 25 ‘11 led to a quick rally above all three EMAs.

The rally seems to have stalled at the 3800 level. The index is technically still in a bull market, but the bulls and bears appear to be equally matched. The immediate hurdle on the upside is the Oct ‘11 top of 3875.

The slow stochastic is climbing towards its overbought zone. The MACD is above its signal line and slowly rising in positive territory. The ROC has entered the positive zone. The RSI is struggling to cross its 50% level. Expect some more sideways consolidation.

Korea KOSPI Index Chart

The Korea KOSPI index broke the bear shackles with a sharp recovery and a gap up jump above the 1900 level to the 200 day EMA, where the bears put up a stiff resistance. The index tried valiantly for a few days to climb above the long-term moving average. It finally appeared to give up the fight today, and closed below the 1900 level.

The technical indicators are showing weakening signs. The slow stochastic is inside the overbought zone. The MACD is positive and above the signal line. The ROC is also positive, but turning down. The RSI is above the 50% level, and also turning down.

The stock has failed to get out of the bear market but is trading above its 20 day and 50 day EMAs. May not be for long.

Taiwan TSEC Index Chart

The Taiwan TSEC chart looks the weakest of the three Asian indices. Though it recovered nicely from its two year low of 6751 and had a gap up jump above its falling 20 day EMA, it started correcting almost immediately and closed below the 6900 level today.

All three EMAs are falling and the TSEC is trading below them. It is likely to fall deeper into a bear market. The technical indicators are bearish. Both the slow stochastic and the RSI are below their 50% levels. The MACD is touching its signal line in negative zone. The ROC has failed to enter positive territory.

The Nov ‘11 low may be tested and broken.

Bottomline? All three Asian indices staged rallies, but with different consequences. The Jakarta Composite chart looks the strongest, as it is trading just above all three EMAs. The Korea KOSPI chart is above its 20 day and 50 day EMAs, but below the 200 day EMA. The Taiwan TSEC chart is the weakest, trading below all three EMAs in the depths of a bear market. Conserve cash and wait for lower levels to enter.

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Nov 25 ‘11

Jakarta Composite Index Chart

The Jakarta Composite index chart continues its struggles to shake off the bears. In today’s trade (not shown in above chart), the index tested its Nov ‘11 intra-day low of 3624 and closed at 3637 – the lowest close in Nov ‘11. The index has closed below the 200 day EMA on a weekly basis, and is forming a bearish pattern of lower-tops-and-lower-bottoms.

Note that the RSI, which has slipped below the 50% level, formed a head-and-shoulders reversal pattern (the possibility was mentioned two weeks back). The slow stochastic has also fallen below its 50% level. The ROC has entered the negative zone. The MACD, which is dropping below its falling signal line, is about to turn negative.

The bears are trying to regain control. If the index drops below 3550, it may go down to test the Oct ‘11 intra-day low of 3256.

Korea KOSPI Index Chart

The KOSPI index chart pattern had dropped below all three EMAs two weeks back with a big downward gap. The bulls made a brave attempt at another rally, and managed to close the gap but failed to reach the 200 day EMA. On Wed. Nov 16 ‘11, the index formed a ‘reversal day’ pattern on strong volumes and dropped below all three EMAs once again.

This time, there was no respite from the bear selling. The 20 day EMA has crossed below the 50 day EMA, and the index is trading well below all three EMAs. All four technical indicators have turned bearish. Note that both the ROC and RSI formed head-and-shoulders reversal patterns. The slow stochastic is inside its oversold zone. The MACD has entered the negative zone below its signal line.

There is hardly any doubt that the bears are back in control.

Taiwan TSEC Index Chart

The Taiwan TSEC index chart pattern continues to be the weakest among the three Asian indices. Two weeks back, I had mentioned the possibility of the index testing its Sep ‘11 low of 6877. In today’s trade (not shown in the chart above), the TSEC dropped all the way to 6751 – a 2 years low.

The technical indicators are very bearish. The slow stochastic is inside its oversold zone. The MACD is below its signal line and falling deeper into negative territory. The ROC is deep inside negative territory. The RSI is hovering above its oversold zone. The index is trading well below all three EMAs.

The index is under complete bear control. Any counter-trend rallies or upward bounces are likely to provide more selling opportunities.

Bottomline? The Jakarta Composite index chart is in a long-term bull market, as it is trading well above its Jan ‘08 bull market top - but is struggling to shake off a bear attack. The Korea KOSPI index rose above its previous bull market top, but is now in a bear market. The Taiwan TSEC index failed to get past its previous bull market top, and is in a bear market. Stay on the sidelines. Lower levels are likely.

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Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Nov 18 ‘11

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Nov 11 ‘11

Jakarta Composite Index Chart

Three weeks back, the Jakarta Composite index rallied strongly to climb above the 200 day EMA after forming a double-bottom bullish reversal pattern. But the bears started to sell immediately, and the index dropped below the long-term moving average. The index had retraced just about 50% of the fall from the Aug ‘11 peak of 4196 to the Sep ‘11 trough of 3218, and looked ready to drop back into a bear market like many of its Asian neighbours.

But the Jakarta Composite has not been one of the best performers among Asian indices for nothing. A renewed effort by the bulls pushed the index above the 200 day EMA to an intra-day high of 3875 on Oct 28 ‘11 – retracing 67% of its fall. Technically, that reversed the short bear phase, which was further confirmed by the 50 day EMA bouncing off the 200 day EMA and the 20 day EMA climbing above the 50 day and 200 day EMAs. That’s the good news.

The bad news is that the recent rally was accompanied by decreasing volumes. The index appears to be struggling to cross the Oct 28 ‘11 top, and has formed a small bearish double-top. The technical indicators are showing some weakness. The slow stochastic failed to re-enter the overbought zone, and is on its way down. The MACD is positive and above its signal line, but has started sliding. The ROC bounced off the ‘0’ line but is again falling down. The RSI is rising above the 50% level, but may be forming a bearish head-and-shoulder pattern.

The bulls haven’t conclusively regained control yet. However, since the index is technically in a bull market, dips can be used to add selectively.

Korea KOSPI Index Chart

The Korea KOSPI index rallied strongly to cross the 200 day EMA on an intra-day basis on Oct 28 ‘11, supported by rising volumes. But the bulls ran out of steam, as the long-term moving average provided strong resistance to further up moves.

The bulls appeared to throw in the towel as yesterday’s gap down opening pushed the KOSPI below all three EMAs and back into a bear market. Today’s 50 points recovery was partly due to short covering and hasn’t really changed the overall sentiment.

The technical indicators are turning bearish. The slow stochastic has dropped below the 50% level. The MACD is positive, but below its signal line. The ROC has fallen sharply into negative territory. Only the RSI is looking bullish by rising above its 50% level, but may be in the process of forming a bearish head-and-shoulders pattern.

Time to sell on rises.

Taiwan TSEC Index Chart

The Taiwan TSEC index is the weakest of the three Asian indices. Its Oct ‘11 rally failed to reach anywhere close to its falling 200 day EMA. Yesterday’s gap down day has pushed the index firmly down into a bear market.

The slow stochastic has broken down from a clear head-and-shoulders pattern, though it hasn’t quite fallen below the 50% level. The MACD is positive, but below its signal line. The ROC has entered negative territory. Only the RSI is giving a contrary signal by rising above its 50% level. A test of the Sep ‘11 low may not be surprising.

Bottomline? Chart patterns of the Jakarta Composite, the Korea KOSPI and the Taiwan TSEC indices appear to have completed their recent rallies. The Jakarta index is fighting to remain in a bull market. No such pretenses are being shown by the KOSPI and TSEC indices. Both have reverted to bear markets. This is not a time to be brave. Conserve your cash.

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Oct 21 ‘11

Jakarta Composite Index Chart

Two week’s back, the Jakarta Composite index chart was on the verge of slipping into a confirmed bear market. The ‘death cross’ seemed imminent, and the bearish technical indicators were pointing to a deeper fall. But the index formed a double-bottom pattern, which is also visible on the slow stochastic and ROC indicators.

A sharp recovery on very good volumes pushed the index briefly above its 200 day EMA, and prevented the 50 day EMA from falling below the long-term moving average. The recovery may be short-lived for two reasons.

First, the index corrected 52% of its fall from the peak of 4196 (on Aug 2 ‘11) to the low of 3218 (on Sep 26 ‘11), which is close to the Fibonacci retracement level of 50%. Only on a retracement of 61.8% or more can we be sure that the down trend has reversed. Second, the index is once again trading below its 200 day EMA, and has formed a bearish pattern of lower tops and lower bottoms.

Positive divergences in the technical indicators – which reached higher tops as the index touched a lower top – may lead to a rally above the 200 day EMA again. However, the down trend line (connecting the Aug ‘11 and Sep ‘11 peaks) and the Sep 9 ‘11 intra-day high of 4028 have to be crossed convincingly before the bulls can regain control.

Korea KOSPI Index Chart

The Korea KOSPI index withstood three consecutive tests of the Sep 26 ‘11 intra-day low of 1644, rallied sharply past its 20 day and 50 day EMAs. But there was no volume support as the index crossed above its 50 day EMA, and the rally ran out of steam. The index formed a ‘reversal day’ pattern after touching the Sep 21 ‘11 top of  1870, and dropped to its 20 day EMA.

The technical indicators are weakening. The slow stochastic is about to drop from its overbought zone. The MACD is above its signal line, but sliding down in positive territory. The ROC is also positive, but falling down. The RSI turned back before reaching its overbought zone. But positive divergences in all four indicators – which reached higher tops as the index touched a lower top – may lead to a rally above the 50 day EMA once more.

Taiwan TSEC Index Chart

The Taiwan TSEC index chart looks the weakest among the three Asian index charts. It formed a double-bottom, but the rally fizzled out before it could test its falling 50 day EMA. The index is trading below all three EMAs, which is characteristic of a bear market.

The technical indicators have weakened. The slow stochastic has started falling after touching the edge of its overbought zone. The MACD is above its signal line, but is negative. The ROC is positive, but moving down. The RSI is sliding towards the 50% level. Note that the technical indicators are showing positive divergences. The index may attempt to reach its 50 day EMA once again.

Bottomline? Chart patterns of the Jakarta Composite, the Korea KOSPI and the Taiwan TSEC indices are still in the grip of bears. All rallies are being used as selling opportunities. Hold on to your cash, and wait for the selling to subside.

Stock Index Chart Patterns – Jakarta Composite, Korea KOSPI, Taiwan TSEC – Oct 07 ‘11

Jakarta Composite Index Chart

The Jakarta Composite index chart pattern was like a beacon of light amidst all the gloom and doom prevailing in Asian as well as global stock markets, reaching its all time high of 4196 on Aug 2 ‘11. But that particular day’s trading formed a ‘reversal day’ pattern (slightly higher high but a lower close) that marked the end of the phenomenal 29 months long bull run.

A ‘reversal day’ pattern usually marks the end of an intermediate up (or down) move, but some times it can signal a reversal of a major trend. In the latter case, it often is an integral part of a larger trend reversal pattern (like a head-and-shoulders or a double-top). What is unusual in the Jakarta Composite chart is that the trend reversal came out of the blue.

Note that during the last leg of the bull run in Jul ‘11, the ROC, the slow stochastic and the RSI failed to reach higher tops with the index. The negative divergences did point to a correction. The ‘panic bottom’ on high volumes in Aug ‘11 was followed by a sharp bounce. But the bear attack in Sep ‘11 breached the Aug ‘11 low, proving the maxim that “panic bottoms seldom hold”.

The correction of 23% from the Aug ‘11 peak, and the break down below the 200 day EMA has signalled a bear market. The imminent ‘death cross’ of the 50 day EMA below the 200 day EMA will confirm it. All four technical indicators are looking bearish. The index may seek much lower levels.

Korea KOSPI Index Chart

Two weeks back, I had made the following observation about the Korea KOSPI index chart pattern: “… the Aug 9 '11 low of 1685 is under serious threat of being broken”. The index dropped to a new low of 1644 on the very next trading session on Sep 26 ‘11. Even that low may not hold much longer, as the index is sliding downwards with up moves getting resistances from the falling 20 day and 50 day EMAs.

The technical indicators are bearish. The slow stochastic and the RSI are both below their 50% levels. The MACD is negative and below its signal line. The ROC is also negative. The KOSPI continues to slide deeper into bear territory.

Taiwan TSEC Index Chart

The Taiwan TSEC index chart dropped to a new intra-day and closing low of 6877 on Sep 26 ‘11, only to bounce up above the 7200 level – where it faced resistance from the falling 20 day EMA. The index once again dropped below 7000 to a slightly higher intra-day low 6890 on Oct 4 ‘11. But the today’s close at 7212 meant a marginal 13 points loss on a weekly basis.

The technical indicators are bearish, and not offering the bulls much hope. After the sharp gap-down fall in Aug ‘11, the index seems to have settled into a more gradual down move. All three EMAs are falling together – a clear sign of a bear market.

Bottomline? Chart patterns of the Jakarta Composite, the Korea KOSPI and the Taiwan TSEC indices clearly show that the Asian indices are in a firm bear grip. Periodic rallies are being used by the bears to sell more. Stay on the sidelines till the selling abates.

Stock Index Chart Patterns – Shanghai Composite, Korea KOSPI, Taiwan TSEC – Sep 23 ‘11

Shanghai Composite Index Chart

 

In my previous update of the stock chart pattern of the Shanghai Composite index, I had mentioned that the Aug 9 '11 low of 2438 may be tested and broken soon.  The index managed to stay above its previous low for almost 3 weeks before the inevitable happened. On Tue. Sep 20 '11, the index touched a new low of 2427. In today's trade, the index dropped lower to 2400, before closing at 2433. 

The bearish pattern of lower tops and lower bottoms continues unabated, with all efforts at up moves facing resistance from the falling 20 day EMA. Three of the four technical indicators are looking bearish - the slow stochastic is in its oversold zone, and the ROC and MACD are negative. The RSI has bounced up from its oversold zone, but is below its 50% level. The bears are regaining their stranglehold on the Shanghai Composite chart.

Korea KOSPI Index Chart

After the sharp fall in Aug '11, the KOSPI index had been showing a lot of resilience, with occasional forays above the 20 day EMA. But after 6 weeks of sideways consolidation, the Aug 9 '11 low of 1685 is under serious threat of being broken. The index dropped almost 6% in today's trade to close just below the 1700 level.

The technical indicators are weakening. The slow stochastic is below the 50% level. The ROC is sliding into negative territory. The MACD is above its signal line, but is still negative. The RSI is resting on the 50% level, but likely to drop below. Lower levels are likely in the coming week.

Taiwan TSEC Index Chart

Like the KOSPI, the Taiwan TSEC chart was trying to keep the bears at bay and managed to stay above its Aug 9 '11 low of 7149. Today's 250 points drop put paid to the last of the bullish hopes. The index briefly breached the 7000 level before regaining about 50 points from its intra-day low.

The technical indicators are bearish. The slow stochastic and the RSI are both below their 50% levels. The ROC and MACD are both in negative territory. Looks like the bulls are ready to throw in the towel against the bear onslaught.

Bottomline? The chart patterns of the Shanghai Composite, Korea KOSPI and Taiwan TSEC indices clearly indicate that the bears have regained the upper hand. All three indices are likely to seek much lower levels. But this isn't the right time for bottom fishing. Wait for the selling rush to play out. Buying can be considered after bottom formations become evident.