MARKET
RAP A
deceptive Wall Street bounce By
Robert M Cutler
MONTREAL - Asian shares
are headed for their best week since July largely
on the strength of US economic data announced
Thursday, in particular a gross domestic product
estimate for the second quarter revised upwards to
3.3% from 1.9%, despite the fact that initial
unemployment figures for the week ending August 23
were in line with expectations.
The Asian
responded positively on Friday, on hopes that the
US as an export market is not dead. Volatility
measures followed established patterns, with the
Greater Chinese exchanges (Taiwan excepted) and
India being the most volatile, the Australasian
grouping of exchanges the least volatile
(including Singapore - though this week excepting
Australia), and Tokyo and
Seoul as often happens in
the middle.
Shanghai swung 8.9% between
its high and low on the week, thanks mainly to a
report (not even a formal announcement) of another
government attempt to stimulate the market, this
time supposedly by exempting dividends from
taxation. Even though the A-share index hovered
Friday afternoon between 2,500 and 2,550, or up
about another 2.3% on the day, there is not enough
momentum to challenge the closest resistance at
2,600-2,700.
Mumbai's BSE Sensex 30 ended
Thursday down 4.1% since the Monday open and
closing below its well-established 14,100 support.
Even so, it followed the all-Asian trend on Friday
morning and gapped up to open with strong upside
momentum. At mid-afternoon Friday it was up about
2.9% on the day and meandering in the mid-14,400s.
Hong Kong was the biggest gainer on Monday
and Wednesday, then the biggest loser on Thursday
due to an aggregate of gloomy profit forecasts and
higher oil prices. Friday saw some initial gains
to above the 21,400 level, before a retreat to
around 21,300, representing confirmation of a
near-term support at 21,100. A medium-term
resistance persists at 21,800, reinforced by the
descending-tops line running from October 2007
through May 2008 and beyond.
Taiwan was
the "outlier" in Greater China group, one of the
less volatile exchanges this week and posting a
solid gain of 2.0% to close above the crucial
7,000 level. (For details on the significance of
this level, see Whole
lotta shakin' goin' on, Asia Times Online,
July 19, 2008.) This pattern confirms its
increasing differentiation from the other Greater
Chinese exchanges (on which, see Bumpy
on the way down, Asia Times Online, August 16,
2008.)
The Australian market is in a
delicate situation even if it has shown recent
strength. This week's movement represents an
overcoming of the short-term declining-tops trend
from May and July this year, but the medium-term
declining-tops trend that began last December
descends only through 5,700 this week.
The
Australian indices could move upwards to meet it
from here, perhaps around 5,500 in mid-autumn.
Meanwhile, Australian economic consensus is for a
central bank interest rate cut next week, as home
sales hit a two-year low. This expectation may be
belied by increased investments in the mining
sector that will affect the gross domestic product
figures also to be released next week.
On
Thursday and Friday, the All Ordinaries
strengthened significantly, closing at 5,215, or
above the 4,900-5,100 quagmire where it has been
stuck for some time. Now the 5,080-5,100 band is a
triple resistance in that the chart shows its
influence on short-term, medium-term and also
long-term movements. At 5,215 the index is at the
top of a different, broader resistance band that
stretches further to about 5,260. So it is now
near the top of the resistance range, but the
remaining resistance yet to be overcome dates from
yet another medium term formation as well as the
long term.
It is worth nothing that
Australia's strength is independent of Wall Street
and also differentiates it somewhat lately from
New Zealand and Singapore, which often move with
Australia and have, all three, been rather docile
lately. (See, for example Much
ado about nothing, Asia Times Online, July 26,
2008.) Indeed, this week they were the two least
volatile exchanges usually surveyed here.
This leaves South Korea and Japan, the two
exchanges that, of the nine usually covered here,
are the most moderate in volatility, intensity and
direction: the most level-headed and realistic, as
it were. This week their performances diverged.
Tokyo benefited from the end-of-the-week Wall
Street bounce, while Seoul did not; and Tokyo
closed up 3.0% at 13,073 for the week while Seoul
was down 1.2% to 1,474, a difference that would
have remained significant, even if smaller in
amplitude, in the absence of Wall Street's help.
This means that the Nikkei 225's
medium-term support at 12,850 has held but it
still faces a descending triangle formed with its
tops line beginning in October 2007. Although the
chart may choose to resolve this tension in the
very near future, it does not have to do so: the
descending tops cut through only about 13,750 next
week. South Korea's KOSPI parallels this formation
in the Nikkei 225, with the exception that Seoul's
descending-tops line from October 2007 is less
steep and therefore less threatening in the near
term; and, ominously, by closing the week at
1,474, the Korean index has not surmounted its
resistance/support level at 1,500, analogous to
the Nikkei's 12,850, which has held so far rather
well if occasionally tenuously.
The
overall tenor of the Asian markets leads to the
conclusion that bounces inspired by Wall Street
are not the stuff of sustainable rallies under
current credit and macroeconomic conditions if
ever. Australia and Japan have the best chances of
showing some self-reliance, but if Wall Street
bounces can't help in the medium term, Wall Street
slumps never help under any terms.
Robert M Cutleris a Canadian
international affairs specialist.
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