MONTREAL - The breakouts from recent medium-term trading ranges noted here two
weeks seem now to have been, as I then warned, "a long-term last gasp before a
more substantial correction prepares the ground for subsequent longer-term
advances" (see New
Year revels continue, Asia Times Online, January 9, 2010).
All major Asian equity indexes are ending the week down, most of them
significantly. Only South Korea and New Zealand are off less than 3.4% in the
week. Many of the major exchanges accelerated their losses from one day to the
next throughout the week, also on daily increasing volume. The benchmark MSCI
Asia
Pacific Index's loss of 4% from last week's close, down to 121.69 by early
afternoon in Tokyo, tells the average story.
This week there was a very high (0.88) rank-order correlation between
volatility and absolute loss. When this occurs, the sub-regional groups in Asia
tend to homogenize equity behavior within themselves at the national level, and
often the groups themselves follow the characteristic patterns that this
commentary has in the past identified. So it was the case this week.
The three Greater Chinese exchanges were the three greatest losers and three of
the four most volatile. This week, however, it was Hong Kong that topped (or
bottomed) the list. Even after an early afternoon recovery, the Hang Seng Index
(HSI) is still off 5.3% on the week to 20,516, but barely exceeding the closing
loss of the Taiwan Stock Exchange Composite (TSEC) of 5.2%, down to 7,921.
Short-term indicators for both indexes turned negative early in the week.
The HSI looks like being temporarily oversold, so any recovery early next week
is likely a prelude to further declines. The Taiwan exchange was perhaps the
only significant Asian exchange where volume did not increase from day to day
with the ongoing decline. Consequently, it is not looking oversold and may
continue falling as from Monday.
The Shanghai Stock Exchange Composite, like the HSI, is recovering late in the
day Friday, in its case from an intraday low of 3,063 back up to 3,137, still
off 2.7% on the week and decisively below the 3,200 support that had sustained
its fall until Wednesday. Its short-term indicators are neutral at best.
The Australasian exchanges were, commensurately, the two least volatile and two
of the three smallest losers, although Friday was the worst day of the week for
both Sydney and Wellington. The Australia All Ordinaries Index ended down 3.3%
to 4,770 with negative short-term indicators, while the New Zealand 50 Index
Gross was down 1.1% to 3,190, with likewise negative short-term indicators
although technically oversold.
The Northeast Asian exchanges, Japan and South Korea, also recovered late in
the day Friday but in neither case enough to offset the morning's losses, let
alone those of the previous four days. The Nikkei 225 in Tokyo is ending down
2.6% on the week at 10,591 with short-term indicators having turned negative on
Wednesday. The KOSPI in Seoul, having in fact risen on Monday, Wednesday, and
Friday, and closed nearly unchanged on Tuesday, is now in fact technically
overbought despite a 2.4% decline Friday that put its close for the week at
1,684, down 1.2% from Friday a week ago.
The Straits Times Index (STI) in Singapore continued its recent tendency to
track Indian equities more closely than the Australasian ones. Following a
general trend to recover towards the Friday close, the STI is at 2,813 in late
afternoon, still down 1.3% on the week but with short-term indicators
accelerating to the negative side and the index not yet even technically
oversold.
The BSE Sensex 30 in Mumbai is struggling in early afternoon Friday local time,
unable to re-penetrate the 17,000 level from the downside, down 3.8% on the
week to 16,857 and fading with negative short-term indicators. The
broader-based Nifty is down 4.4% to 5,041 with stronger negative short-term
indicators. Both indexes have been halted over the last couple of weeks at the
level of their early May 2008 intermediate highs, which now appear to be
exerting resistance against pursuit of any putative penetration of the
respective levels.
If Shanghai is the canary in the mine shaft of speculation (see
Blindfolded on a cliff edge, Asia Times Online, December 18, 2009),
then this week it is coughing and sneezing. Key is the question whether the
SSEC will maintain itself above the 3,000 level, below which it would re-enter
its 2,850-3,000 trading range from last year. A clue to this will be whether it
can keep its head above 3,150, since that trading range was itself embedded
within a broader 2,700-3,150 range.
This is especially significant at the present juncture, where the SSEC is
wobbling back and forth on either side of its 50-day moving average (both
simple and exponential). As mentioned above, the short-term technical
indicators give little guidance as to the resolution of this ambiguity. The
chart has already violated the up-channel initiated by the recovery beginning
November 2008, and it is perilously close to violating the secondary trend that
started last September.
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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