MARKET RAP Asia continues to advance
By R M Cutler
MONTREAL - Asian equity markets continued to rise last week, and while the
absolute amounts were not quite as much as the week previous, the patterns were
nevertheless more stable and slightly less volatile overall. Although the MSCI
Asia-Pacific Index closed up only 0.7% at 119.60, its ex-Japan version ended up
2.0% at 409.32.
All eyes were on the Shanghai Stock Exchange Composite (SSEC), insofar as a
general opinion has grown that the speculative money has flowed there. The
SSEC, having led the Asian recovery in equities and outpaced expectations by
rising almost to 3,500 two and a half months ago, has therefore become in some
eyes a bellwether for Asian growth and, by extension, global economic health.
The crucial level for the SSEC is 3,000, a number marking strong
resistance first established last summer on the way down, and then confirmed
more recently as the upper bound of a shorter-term trading range. The index
closed Friday at 2,977, showing some strength at that level where it closed the
previous two days as well, marking a Thursday intraday high of 3,014.
The SSEC's short-term indicators are slightly on the favorable side of neutral,
but technicians will be watching the 50-day (simple) moving average, which has
been declining and is right now just above the level of the index's last close.
However, the index is already significantly above its 50-day exponential moving
average.
The SSEC was characteristically the most volatile of all Asian exchanges in the
week just concluded. The Greater Chinese exchanges were indeed three of the
four most volatile, but their behavior otherwise diverged. The SSEC was the
third-best performer in the region, but Hong Kong's exchange was the fifth
best, and Taiwan's tied only for sixth. However, it was such a good week
overall, that each of these last two notched nontrivial gains.
The former's Hang Seng Index finished the week at 21,930, up 2.0%, while the
latter's Taiwan Stock Exchange Composite (TSEC) finished up 1.9% to 7,691. The
Hang Seng gapped up on the Thursday open but declined that day and the next,
now at its current level facing a resistance first described in March 2008 and
then confirmed in September of the same year. However, it is showing
significant technical strength, indeed much more than the SSEC.
The TSEC may be pointing back to the trading range from 7,400 to 8,500 that it
occupied from the end of November 2007 through the end of March 2008, from
which it gapped up and maintained the advance through June that year before the
precipitous decline from which it has been recovering since the beginning of
the current year. That range, however, is terraced with supports and
resistances that complicate the current interpretation. Nevertheless, the TSEC
has strong short-term technical indicators.
Other than the general volatility among the Greater China exchanges, the only
regional regularity this week was the overall low volatility and relatively
small advances in New Zealand and Australia. The New Zealand 50 Index Gross
(NZX) rose 1.4% to 3,207. Its short-term technical indicators are strong and
only getting stronger. It needs to confirm its surmounting over the resistance
at 3,190 from July and September 2008 and then attack the trading range that
extends up to 3,320.
In Sydney, the Australia All Ordinaries Index notched a 1.9% gain on the week
to close at 4,842 with generally strong short-term technical indicators, though
with some of them weakening. However, it is on the verge of running into the
4,900-5,000 range to which I have pointed in recent weeks as a likely brake
upon the current advance.
Singapore's Straits Times Index (STI) had a split personality this week,
sharing the lower volatility of the Australasian indices just mentioned, but
more closely resembling the Indian market through its stronger advance. The STI
rose 2.1% on the week to 2,708 with continuing strong technical indicators but
continuing to follow the pattern of the Hang Seng in that it is on the verge of
running into a resistance in the higher 2,700s (kicking in around 2760-2,780)
similarly inherited from the March through September 2008 chart.
With that advance the STI nearly tied with the SSEC for third best performance
of the week, bringing it closer in kind to the other major South/Southeast
Asian exchange in Mumbai. There, the BSE Sensex 30 jumped 4.1% to 17,323 on the
week despite the exchange being closed Tuesday. It has risen so far as to
encounter potential resistance, at its current level, from a local maximum from
early May 2008. Still, the Sensex finished the week with still favorable
short-term technical indicators.
Finally, the North Asian exchanges showed a bit of schizophrenia as the Nikkei
225 average in Tokyo was the second-best performer on the week while the KOSPI
in Seoul was the worst, indeed the only major index reviewed here to finish
with a loss. Despite the Japanese exchange being closed Monday, the Nikkei
finished up over 2.4% to 10,258 but still within the 9,700-10,500 trading range
that it has occupied for the past three months. Its short-term technical
indicators are mixed, and traders will be following the 200-day (simple) moving
average, currently at the level of the index itself, for a clue to its next
move. They should recall that the present level is equivalent to a long-term
resistance confirmed in spring-summer 2003 on the basis of chart behavior from
autumn-winter of 2001-02.
To conclude, the South Korean exchange has taken a breather since hitting its
short-term high a month ago at 1,719. In the week just concluded it closed at
1,640 with a loss of 0.4%. This level is in the middle of a trading range from
1,600 to 1,720 that it has occupied for the last two months: or, if one extends
the lower bound of the range down to 1,550, nearly three months. The KOSPI's
short-range technical indicators have decayed somewhat and it seems mired
although seemingly not in danger of sinking in any quicksand.
In sum, the Asian exchanges continued their advance in the week just concluded,
but short-term technical indicators aggregated across markets deteriorated
somewhat overall. That said, the MSCI Asia-Pacific Index ex-Japan itself
remains in good technical shape but also at a somewhat crucial juncture, as
from its present level there are resistances at 414 from mid-February 2007, at
418 from mid-August 2007, at 422 from mid-March 2008, and (should it surmount
those, then most significantly) at 432 from the end of July 2008. Yet I repeat
the caveat mentioned in previous weeks, that it is now more necessary than ever
to regard each market individually and to avoid the temptation to generalize
even within a sub-region. North Asia this week is only a case in point.
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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