MONTREAL - By any measure, this has been a momentous week. The concerted effort
by the major central banks to boost liquidity in the middle of Thursday trading
in Asia, with US$220 billion pumped into the world financial system to
encourage lending, may have saved some of the markets from meltdown, but we
will have to wait and see. It is important to recall, however, that it is
probably not with Asia in mind that this was done.
Rather, it was clear that unease had become a genuine fear in some quarters
(itself a necessary prerequisite for the hopeless capitulation we will not see
for a while). With Friday being options expiration day, it was imperative that
there would be no liquidity crunch. Reaction to the central bank injection
swept across the globe to the Thursday market opening in Europe, before
spilling over to New York.
Some analysts see New York's surge on Thursday, when stocks
gained the most in six years as the Standard & Poor's 500 Index climbed
4.3%, as nothing other than a short-covering rally in preparation for Friday.
How the European and North American markets act on Friday, after this column is
published, will be critical in determining the proper chart interpretation, and
as necessary I will come back to the subject next week. At such times, it would
be foolish to assume the performance of Hong Kong's Hang Seng Index,
up more than 9.5% on Friday, Japan's Nikkei 225, up 3.8%, and
Seoul's Kospi, up 4.5%, as an accurate indicator of the trading day further to
the west.
In Asia, the Shanghai and Australasian markets (in which group I sometimes,
such as this week, include Singapore for technical reasons), the charts
urgently demand resolution of often similar patterns.
Starting with the China-India group, the first thing to note is that Taiwan was
the only North Asian market open on Monday. The other two greater Chinese
markets, Shanghai and Hong Kong, were (along with Seoul) closed for a holiday.
Nevertheless, Shanghai was the second-most volatile of the nine equity markets
usually covered here, a little less volatile than in the past but still not so
calm. Unusually for the recent past, however, they were the two best
performers, which means only that they lost the least.
Shanghai, with a 9.5% comeback on Friday by the start of afternoon trading,
erased nearly all its losses on the week to hover around 2,075, or back nearly
at the top of the 2,000-2,100 support level I have discussed here before. This
is after touching a low for the week at 1,802 on Thursday afternoon and
breaking the lowest extension of the support range to close that day at 1,895,
although reopening on Friday 170 points above that level.
So possibly Shanghai has escaped for the moment, and local factors such as the
government decision to scrap the tax on equity transactions, certainly played a
role, but its chart is still a prisoner of three (no, now four!) increasingly
acute descending-tops lines. The earliest of these dates to its all-time
high from October last year (from which the 1,895 close on Thursday represents
a decline of over two-thirds) although the main one appears to date from the
end of January. The newest one starts only a month ago.
Relatively calm Australia and New Zealand were among the least volatile
exchanges on the region, but Wellington had the second-largest percentage loss,
down 5% on the week. The New Zealand 50 Index Gross spent all last week in the
mid-3,300s and closed this week below 3,200.
That means that its breakout from against the well-marked descending-tops line
that started last October is not confirmed. It has fallen back below the cusp
of the 3,200 resistance (support) that has been in evidence since March 2005.
The descending triangle is now reaching its apex, and a resolution one way or
the other is imminent.
The Australia All Ordinaries is closing the week at about 4,840, below the
4,900-5,100 band I have discussed at length before and where it has been
churning for some time, as it did for much of the second half of 2006. There
is, however, a secondary support near this level, ranging from 4,830-4,870 from
January-February of the same year. The Australian market is in a descending
triangle formation very similar to New Zealand's, also still unresolved and
unable to avoid resolution much longer.
Crucial confirming evidence of the criticality of the present juncture comes
from Singapore, which often but not always moves with Australia and New
Zealand. It now finds itself also in a congruent descending triangle formation.
In this case, the Straits Times Index finds long-term support at the
2,400-2,500 level from January 1996, January 2000, August 2005, and June-July
2006.
At the beginning of afternoon trading on Thursday, just before the central
banks announced their provision of greater liquidity, this index was falling
through 2,300, down an incredible 7.4% on the week after only three-and-a-half
trading days. It ended Thursday unchanged from the Wednesday close, and as
Friday afternoon begins is down only about 2% on the week, steady around 2,560,
and still seeking resolution between the medium-term descending-tops downtrend
and the long-term support at the same level.
I save Taiwan and Hong Kong for a midweek commentary next week that will also
treat the important exchanges in Tokyo and Seoul and Mumbai.
R M Cutler is a Canadian international affairs specialist.
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