MARKET RAP Friday blues come up trumps
By R M Cutler
MONTREAL - Asian stocks were roughly unchanged on the week or even slightly
positive until Friday, when they joined the global downturn, ending with the
largest weekly declines in 10 weeks. By the end of the carnage, the mean weekly
loss was 2.3% and the median 1.9%. Every national index surveyed here ended off
at least 1%, while the MSCI Asia Pacific Index was off 1.9% on the week early
Friday afternoon in Tokyo.
The four sub-regions (Australasia, Greater China, Northeast Asia, and
South/Southeast Asia) exhibited more or less typical character with respect to
degree of volatility, but as to absolute change on the week there was no
conformity to type. The rank-order correlation between volatility and absolute
change was a relatively low 0.27. This means that the various markets continue
to follow each its own internal dynamic while still constrained by geographic
group.
The clearest and most typical example of this phenomenon is the three members
of Greater China group, which were three of the four most volatile on the week
even while Taiwan was by far the largest loser, although Hong Kong and Shanghai
were the third and fourth least bad weekly performers. The Taiwan Stock
Exchange Composite (TSEC) closed down 5.5% on the week at 7,218, as short-term
technical indicators generally remained negative for the fourth week running
despite some indications of being oversold. It is now down 13.3% over a little
more than three weeks.
The Shanghai Stock Exchange Composite (SSEC) is down 2% on the week to 2,929 in
late afternoon Friday local time. On all five days of the week it tried without
success (this after failing also for four of five days last week) to penetrate
to the upside the 3,000 resistance level to which I have often pointed.
Short-term indicators remain negative.
The SSEC had intraday highs above that level on Wednesday and Thursday, but
despite closes those days respectively at 3,003 and 2,995 it has utterly failed
for over two weeks to consolidate any such gains. The next level for the SSEC
to test on the downside is the 2,850 minimum of the long-standing trading
range, and then the bottom of the extended trading range at 2,700 or slightly
below.
The Hang Seng Index (HSI) in Hong Kong was down 2.1% to 19,703 on the week in
early afternoon Friday local time, setting up the fourth consecutive weekly
decline, which would be the longest losing streak in 16 months. It is now at
the bottom of its five-month trading range (in contrast to other Asian national
indexes that have penetrated their trading ranges to the downside) with
short-term indicators improving and also less negative than for other regional
exchanges. This is not suggesting any intrinsic strength, however. The HSI
would be unable to resist generalized further strong downdrafts, and its next
support levels would not kick in until just under 18,900 and then just under
18,400.
The Australasian exchanges likewise showed some disorientation. Typically among
the least volatile with smallest absolute change, they were this week highly
erratic. The New Zealand 50 Index Gross was indeed the least volatile index but
it had an overall average loss, finishing down 1.9% on the week to 3,105, at
the bottom of its six-month trading range (also the level of its July 2008
local minimum) and with negative short-term technical indicators. Should it
violate the present support level, the chart would not offer support again
until the mid-2,800s.
By contrast, the Australian All Ordinaries Index had the second-smallest loss
of the week but experienced average rather than low volatility. It closed off
1.4% on the week at 4,533, also at the bottom of its five-month trading range
with improving but still definitely negative short-term technical indicators.
It is slightly oversold but it seems that any generalized downward momentum
would overcome any reflexive bounce early next week relatively easily.
Turning to Northeast Asia, again we find a sub-region where the national
exchanges together followed established volatility patterns but separately
diverged with respect to absolute change. Tokyo and Seoul were respectively the
fourth- and second-least volatile markets on the week, but whereas Tokyo
notched the smallest decline, Seoul reported the third-largest overall loss.
The Nikkei 225 was off only 1.4% to 10,057 but had been up that much through
Thursday, thanks especially to a 1.6% rise on Tuesday. However, the Friday loss
in the generalized downdraft doubled the week's previous gain, and the index
finished with the decline. Even if its short-term technical indicators are in
fact improving and almost neutral, this index does not have the strength
necessary, as the Friday action showed, to resist continued negative pressure.
Potential medium-term supports are at levels just below 9,700 and just below
9,100.
South Korea's KOSPI, in a pattern common with the Nikkei, was up on the week
until Friday's steep decline overwhelmed it. The KOSPI had been up over 1%
through Thursday until a strong hit of over 3% on Friday produced a weekly loss
of 2.2% with a close at 1,567. That said, short-term technical indicators were
negative throughout the week, indeed have been for the last three weeks, with
little prospect for change. The bottom of its medium-term trading range is in
the mid-1,520s with the next medium-term support 100 points lower.
Singapore resembled Australasia in relatively low volatility (third-least
volatile) but South/Southeast Asia in absolute movement (second-greatest loss).
The Straits Times Index (STI) was down 5.1% in late afternoon Friday local time
to 2,696 with negative short-term technical indicators that had nevertheless
been slightly improving throughout the week. Its medium-term trading range
technically extends down into the 2,520s, but that range was actually a mild
up-trend channel; the more proper short-term trading range was violated with
the Friday close below the low 2,700s.
The BSE Sensex 30 in Mumbai gapped down at the Friday open, as did many other
exchanges, but unlike some of them has shown continuing weakness throughout the
day, such that in early afternoon Friday local time it is down 3.5% on the week
at 15,787, the second-worst loss after Taiwan and in fact tied with Taiwan for
greatest volatility. Its short-term technical indicators are in fact worsening
and the broader-based Nifty confirms that trend. The qualitative description
just given of the STI charts fits also the Sensex, with the numbers and ranges
proportionally adjusted.
To summarize the Asian markets, Friday was the killer. Volume was by and large
stagnant or declining throughout the week, including the Friday decline, and
few of the indexes are yet technically highly oversold. Any small technical
rally early next week (and there is no guarantee of one) would look like a
prelude to further downward moves.
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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