MONTREAL - Technically driven rallies in Asian equity markets began to stumble
this week as expectations started to re-align with underlying fundamentals in
general and earnings prospects in particular. The MSCI Asia-Pacific Index
finished the week at 362.95, up less than one-tenth of 1% from last Friday’s
362.7, while the ex-Japan version of the index was also essentially unchanged,
down marginally from 111.9 to 112.
Both indices reached their weekly highs at the Monday close and declined for
three of the last four days of the week. The nine
principal national equity market indices covered here set a relatively high
(Pearson product-moment) correlation coefficient of 0.76 between intraday
volatility and weekly (Friday-on-Friday) decline.
There was fairly strong homogeneity among markets within the same Asian
sub-regions. For example, the three Greater China exchanges were three of the
five most volatile and three of the five biggest losers, while the two
South/Southeast exchanges were two of the four most volatile and two of the
four biggest losers. The behavior of the Australasian and Northeast Asian
exchanges were slightly more mixed, but taken together these four were the
least volatile and smallest losers (or biggest gainers) in the region.
Headlining the week was the Shanghai exchange, where the Shanghai Stock
Exchange Composite (SSEC), after reaching into the 3,470s early in the week,
declined Wednesday through Friday and fell back under 3,300 in late trading
Friday, or just a bit less than twice the 1,717 level of its medium-term low on
November 6 last year.
Near the Friday close, the SSEC was falling through 3,280, marking a decline of
over 3.8% on the week and making it the biggest loser. This new level below
3,300 is within the gaps-up both from April 23-24 and June 5-6 of last year,
which the chart had however finally closed during the last 10 calendar days of
last month.
A first target for this incipient decline would be in the low 3,100s but a
range in the high 2,800s would be an even more significant test of long-term
support. Failing to maintain that level would take the SSEC back into its
June-August 2008 trading range, with a lower bound in the mid-2,650s, after
which the next support does not appear before the 2,300s. From a wave-structure
perspective, 2,373 is a significant long-term target although this does not
mean that the SSEC will fall there like a rock.
The Taiwan Stock Exchange Composite (TSEC) was the week's third-biggest loser,
closing Thursday and the week (the Taiwan market was shut on Friday) down 2.95%
at 6,869, unable to stay above the key long-term 7,000 level and breaking
through its short-term support at 6,950, which had sustained it early last
week, to the downside on average volume.
It has a short-term support in the 6,750-6,800 range, which is also where its
50-day moving average is currently plateauing. There are medium-term supports
in the 6,400-6,600 range but these are a little shaky. There is a more solid
support in the low 6,200s but that is the upper bound of the unclosed gap-up
from the end of May, which extends down to the 5,800s. The April 17 high of
6,071 is a possible target.
Finally, the Hong Kong's Hang Seng Index (HSI) was down 0.1% on the week on
Friday mid-afternoon, in the mid-20,500s with fairly strong technical
indicators and medium-term support at 19,000 and 17,500 (where there is also
some potential long-term support) as well as separately at 17,000 and at a
number of intermediate levels.
At the very start of trading on Tuesday, the BSE Sensex 30 in Mumbai was able
to scratch its way above 16,000 for a brief moment, Four times this week it
assaulted the 15,950 level before each time declining until the short-term
15,700 level gave way, leading the long-term 15,500 support seemingly to fall
away, as the index lost 2.5% on Thursday and kept falling until mid-morning
Friday local time, when it tried catch its breath before dipping below 15,200.
There is a long-term support around 14,000 below which a short-term support
appears near 13,500, but after that the average enters the unfilled gap-up from
mid-May that extends down to 12,200.
Singapore's Straits Times Index (STI) is the biggest loser on the week. It
opened Tuesday at its high for the week just under 2,700 and has fallen
steadily since then until it closed on Friday at 2,553, down about 3.6% on the
week and teetering on the edge of a long-term support from September 2008.
After that, the next long-term support is in the 2,070s, although there is
decent short-term support between 2,200 and 2,400.
The STI is on the verge of breaking under the ascending-bottoms trend line that
has supported its rise since spring. Wave analysis suggests 2,180 as one of the
more likely intermediate-term targets.
At the end of the first week of June, as the Australian All Ordinaries Index
closed at 3,969, I wrote (see
The charge goes on, Asia Times Online, June 6, 2009) that its "next
major chart resistance [was] at 4,287" and that "technical wave prediction sets
the next limit to test at 4,313".
On Tuesday this week, it closed at 4,314, a level it surmounted only on
Thursday when it closed near its Tuesday intraday high near 4,340, and then
declined Friday to find support at its previous resistance level of 4,288,
before closing the week at 4,303, actually up 1.3% over last Friday's close.
Should the Australian All Ordinaries break definitively lower, the next real
(medium-term) support is only in the 4,060s although below that there are
further medium-term supports until a long-term support kicks in around 3,730.
The New Zealand 50 Index Gross, which with Australia has significantly
outperformed over the past several weeks, closed the week up 1.75% at 3,069.
The charts shows a medium-term support at 2,873 while wave analysis points to a
possible support at 2,854; below that, short- and long-term supports coincide
in the 2,719-2,733 interval.
Finally, the Tokyo and Seoul markets were two of the three least volatile in
the region on an intraday basis and two of the four best performers, up
respectively 0.4% and 1.2% on the week, which also tells you what kind of week
it was. For Korea's KOSPI, which finished the week at 1,576, the next supports
are in the 1,477-1,502 range and then separately at 1,360-1,430, while it is
right now up against a resistance the extends to 1,626.
The KOSPI's technical indicators index are overall quite strong although the
index is looking a bit overbought at the moment. The Nikkei 225, on the other
hand, closing the week just about 10,400 without real direction but with poor
technical indicators, is threatening to descend back into the 9,000-10,135
trading range, where it stagnated from the beginning of May up until a few
weeks ago.
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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