MONTREAL - Equity markets in Asia rose this week, with fingers pointing to the
cause being investor speculation that corporate earnings will continue to
improve. The MSCI Asia Pacific Index reached its highest mark since last
September, rising over 2.6% on the week to reach 113.36 by the Friday close.
Its ex-Japan version rose 1.8% to finish the week at 366.98.
In contrast to last week, performance varied significantly within the various
Asian sub-regions, making patterns less clear and national idiosyncrasies more
salient, with the exception of Australasia.
The standout of the week was undoubtedly the losses in China, where the
Shanghai Stock Exchange Composite (SSEC) was the
worst loser in Asia on Wednesday and Friday and second worst on Monday. On
Friday, it meandered down to 3,045s, a fall of about 6% on the week after
losing 4.7% on Wednesday alone. The current week is the fourth consecutive
period that the Shanghai exchange has been the most volatile; recall too that
it had a 5% down day on July 29.
The SSEC was actually overbought or close to it for the first three weeks of
July, following an uptrend in relative strength since the end of April.
Technical indicators suggest a continuation of the present correction at least
in the short term. The index looks ready next week to test the 2,900 support
from last July, through which it broke (to the upside, as a resistance) only
three months ago.
The two other Greater Chinese markets, Taiwan and Hong Kong, had slightly below
average volatility, but the Taiwan Stock Exchange Composite (TSEC) was the
region’s third best gainer, up 2.9% on the week to 7,070. Two-thirds of the
weekly gain came on Thursday, on relatively light volume. The TSEC is poised to
advance if it succeeds in confirming that it has overcome the long-term
resistance around 7,000 that I have discussed many times here. The next major
resistance on the upside is around 7,300.
The Hang Seng Index in Hong Kong was up 1.6% to 20,697 on the week at Friday
midday local time, strengthening further in late trade to 20,893. This is about
an average gain for the region’s equity markets by both arithmetic and
geometric measures. The level is now right up against a significant resistance
first sketched March 2008 and then confirmed in June-July of the same year. The
case could be made that a formation from mid-August 2007 also strengthens the
resistance.
Volume over the past number of weeks has not been strong and various technical
indicators show little optimism. At a minimum, a test of the support around
19,000 would seem to be in the cards; if it breaks through to the downside,
then 17,500 would be next. It becomes possible, then, that Hong Kong declines
in tandem with Shanghai while Taiwan bucks the trend, but this is not a sure
thing.
There was a degree of homogeneity in the behavior of the Australasian
exchanges, meaning Sydney and Wellington, whose patterns were joined this week,
as sometimes happens, by Singapore. Indeed Australia, New Zealand, and
Singapore were three of the five largest winners this week with three of the
five most medium volatility.
The Australia All Ordinaries Index was only the second-best gainer on two days
this week, but its performance was steady enough to win it honors for the best
performance, up 3.8% over last Friday’s close to 4,465 on the back of strong
world industrial commodities, a recently stronger national currency, and the
belief that the worst is over. This was epitomized by the central bank
governor’s declaration of readiness to raise interest rates from their present
"emergency" level as time goes by.
However, the Australian market remains close to being overbought and it could
easily crumple once copper prices top out and begin to decline. Indeed, the All
Ordinaries chart is up against a significant double-top from October-November
2008 (not to mention a local minimum from October 2006). Theoretically, it
could proceed to break through this resistance and run to the low 5,300s, but
that seems unlikely at the present juncture.
The New Zealand 50 Gross (NZX 50) had what for it was an extremely strong week,
up 2.7% to 3,151, almost all of the advance coming on Thursday and Friday, and
most of it on Thursday, when volume also spiked. This optimism, according to
press reports, was a response to the construction company Fletcher Building
posting its first loss in eight years, warning that it would likely cut more
jobs beyond the 15% of its workforce already let go this year, and publishing a
negative prognosis for international construction markets.
You read that correctly. Since earnings beat expectations, pundits felt
empowered to opine that Fletcher would be ready for the recovery when it came:
real soon now. In fact the NZX 50 is up against a resistance from February 2005
that was confirmed in July 2008. Like the Australian index, the NZX could
conceivably run further, in its case to somewhere between 3,341 and 3,457. But
the point here is that from a charting perspective, there is nothing to prevent
both indices from deciding that they have already gone as far as they feel like
going.
Singapore too had an above-average gain on the week. The Straits Times Index
(STI) found itself in Friday mid-afternoon local time in the 2,610s, up almost
2.5% on the week, and trying to confirm its breakout to the upside through the
significant 2,500 resistance level (early 1994, early 1996, late 1999, early
2000, summer 2005, and autumn 2008). The STI hit a short-term high a week ago
at 2,700 and has fallen back since then.
Technical indicators are less rather than more favorable. Since it is now back
in the 2,600 range, we cannot consider that it has definitively broken the
resistance at 2,500, particularly since it has a short-term support at 2,400
that is the top of its trading range (which extends down to 2,100) from early
May through mid-July.
Japan and South Korea were the two least volatile markets this week and two of
the three lowest gainers. Seoul's KOSPI was up 1% to 1,591 and the Nikkei 225
was up 1.8% to 10,597. I will have more to say about them in future weeks when
they may become more volatile. Readers are referred to my previous columns for
remarks on the KOSPI's trend, which this past week has done nothing to modify.
Two months ago, I wrote, "After 1,500, the next resistance interval is the
1,590-1,620 range. Meanwhile, the long-term descending-tops trend-line
governing the KOSPI's descent sets up a major test of the South Korean market's
recovery for the medium-term future." (See
South Korea sticks to business, Asia Times Online, June 12, 2009).
It bears mentioning that we seem to be able to say now that the KOSPI appears
to have passed that test at the end of July. This may become a rather more
definite statement if, confronting the 1,590 resistance, the index succeeds for
the next three weeks in staying above its downside support at 1,500.
I conclude on the Indian exchange, where the BSE Sensex 30 in Mumbai finds
itself up 2% on the week in early Friday afternoon local time to 15,523. This
move comes on the back of a short-term midweek recovery that took it from
14,720 at Wednesday noon to 15,540 by the Thursday close, a 5.6% bounce in a
day and half of trading.
The index is being protected from having to challenge its medium-term 13,400
support level by a long-term support ledge in the 14,700-15,250 interval, above
which it has re-established itself. However, the next resistance interval
begins close to 15,600 and extends up to 16,000.
Technical indicators for the Sensex at the present juncture are mixed but
slightly favorable, as investors watch the 50-day moving average. The
broader-based Nifty index is just below 4,600 in early Friday afternoon local
time, already confronting its own correlative resistance level to the upside,
with slightly better technical indicators than the Sensex and slightly greater
support to the downside.
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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