MARKET RAP A respite, but no reprieve
By R M Cutler
MONTREAL - Two Greater China exchanges were once again the most volatile and
the biggest losers this week, with the Shanghai Composite losing 5.8% and the
Hang Seng in Hong Kong down 2.5%. It is possible that the decline in China is
not yet over, as it is slipping under the 2,100-2,200 support level to which I
have long pointed, although oscillating in the 2,070s just before closing, it
does have a wider band of support from the same period when that level was
established in 2000-2001.
That wider band of support extends down to the low/mid 1900s. What is clear is
that the rate of descent has picked up again, because the index did not enjoy a
one-day countervailing upward spike, as it had done last week and the week
before. As for the Hang Seng, it is closing the week on a downtrend in the high
19,300s, unable to pull itself back up over 20,000 with the
grappling hook it threw over the level on Tuesday and Wednesday. The only thing
holding it up now is relatively weak support at its current level, dating from
November 2006 and confirmed only once, in March 2007.
By contrast, Taiwan was the biggest winner on Monday and Tuesday but still
closed almost even, up only 0.1%. As with many Asian exchanges this week,
Taiwan's biggest loss came on Thursday. The difference this week was that it
was also the biggest gainer on Tuesday, when most other exchanges were down.
Interestingly, the Singapore Straits Times Index paced Taiwan this week rather
than either Australia or New Zealand. At 2,575 it is now at its lowest level of
the decade, in fact at the level where it started the year 2000. Indeed, this
support dates back to March 1996 and January 1994. However, momentum is not
good and the current downtrend is very well marked and has been scrupulously
observed. The BSE Sensex 30 in Mumbai was uncharacteristically calm this week,
in fact the third least volatile, and down 2.1% on the week going into
afternoon trading on Friday.
In the Australasian corner, New Zealand had Asia's best gain on Wednesday and
Thursday, finishing the week up 0.8%, which is a modest gain but is still the
best showing behind Seoul's phenomenal rise. This is the second week running
that Wellington has been Asia's second best performer. Yet, as in five out of
the last eight weeks, it was the least volatile. (The other three weeks it was
twice the second least volatile, and once the third least.)
It has still not pierced the 3,400 resistance level that I pointed to last
week. Yet the good news is that the low volatility has kept it in range. It
spent the whole week between 3,330 and 3,392. The run up at the resistance came
on Wednesday, which was actually the exchange's second slowest day of the week
on volume, which is not a good sign. But it inhabited its current level for
most of the second half of 2006, so the technical support seems good, moreover
since earlier this month it bounced off the high 3,100s, confirming the
significance of that support level, which it established in 2005.
The problem for this index is that its descending-tops line starting in October
2007 cut through 3,400 last month, so it is fighting that trend at the same
time as the aforementioned resistance at the same level. However, both those
chart features are younger than the support just below 3,200. This index will
occupy a trading range with a lower bound there, until it has to choose which
path to take. The descending-tops line will cross 3,200 in the second half of
October.
The Australia All Ordinaries index was medium on volatility this week but
closed slightly up on the week thanks to a spurt during the last two trading
hours on Friday. However, it is now at the bottom of the 4,900-5,100 range that
I have discussed before. The situation is made more ominous by the fact that
there is a descending-tops line in this chart too, that punched through 5,000
about three weeks ago, and the movements of the index this week remain
contained by it.
The Seoul KOSPI was the region's best performer on Monday and Friday, and it
survived the Tuesday-Thursday downturn nearly unscathed, emerging as by far the
biggest winner, up 5.2% on the week. What made the difference here is the
support the chart found in the 1,400-1,475 range (coincidentally the two
numbers marking respectively its open and close on the week), a relatively
strong-looking support with well-marked maximum and minimum, established over a
period of six months of weaving back and forth between November 2006 and April
2007.
However, the limitations on the movements of the index this week still respect
a rather well-drawn descending- tops line starting from the end of May this
year. In addition, there is a short-term resistance from July (which turns into
a medium-term resistance as time goes on) occupying the range between 1,500 and
1,575, with a very well defined minimum.
Finally, Tokyo closed almost unchanged on the week in the low 12,200s, with the
Nikkei 225 trying to hold that support level on the basis of formations dating
from March-April 2002 and April 2004. The April 2004 formation could actually
be interpreted as a broader band of support ranging down to 10,900, and this
will be challenged by the Nikkei's descending-tops line: or rather lines, since
there are really three descending-tops lines on the chart, of increasing
sharpness as one gets closer to the current date. Right now Tokyo is fighting
only the first of them. All in all, the tone of Asian markets was desultory
although this week's action could be considered a respite from recent travails.
But they are far from out of woods.
R M Cutler (http://www.robertcutler.org) is a Canadian international
affairs specialist.
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