Technicals

The S&P/ASX Has Broken Through Channel Support

The Japanese benchmark is working its way deeper into a congestion pattern. A series of lower swing highs for the Nikkei 225 over the past two months has developed a convincing wedge formation with the more-established rising trend from April. Realistically, this congestion pattern has more than 500 points of room to maneuver so a trend-defining breakout is not necessarily imminent. However, there is the potential for a short-term break with the pivot and Fib confluence set at the psychologically-significant 10,000 level. A bullish break here is the more likely outcome; but should this level hold, we could quickly progress a deeper retracement of the dominant bear trend.

The Nikkei 225 rally from the October 2008 low is in 5 waves and therefore probably wave within a larger A-B-C corrective (probably a zigzag) advance.  Weakness from the January high likely extends to 9076 (wave iv low).  8494 is additional support.

The S&P/ASX 200 is on a tear. The three-session rally that began with last Friday is the most aggressive bull wave we have seen since the inception of the solid mid-July to October advance. At the same time, the rally may simply be a correction of the late November plunge that still has traders wondering whether Australian equities are developing a medium-term top. In the meantime, we have notable resistance with the pivot (going back to September) and short-term 61.8 percent Fib of the recent bear correction at 4,750. If this level holds, it could develop a head-and-shoulders formation.

The S&P/ASX has broken down below channel support.  A drop below 4503 would expose 4261 and then 4079.  Favor the downside against the January high.

The Hang Seng Index is just off the 15-month highs set back on October 23rd. The trend is still clearly in favor of a test and perhaps breech of this moderate technical level (the 61.8 percent retracement of the December 2007 high to October 2008 low comes in around 22,595). The long-term bias is still well defined by a series of higher swing lows. The only stopping force for Hong Kong equities at this point is momentum. The average true range (ATR) shows the market is the most volatile it has been since mid-August; before the period of congestion and the notable pull back.

The Hang Seng was the leader on the way up and is leading on the way down as well.  The index never reached its November high and is approaching the August low at 19426.  There is potential channel support at 18305 this week (increases 148 points/week) and a drop below would expose 17186, then 15781.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

Japanese Equities May Soon See a Break but it May not be to Record Highs

The Japanese benchmark is working its way deeper into a congestion pattern. A series of lower swing highs for the Nikkei 225 over the past two months has developed a convincing wedge formation with the more-established rising trend from April. Realistically, this congestion pattern has more than 500 points of room to maneuver so a trend-defining breakout is not necessarily imminent. However, there is the potential for a short-term break with the pivot and Fib confluence set at the psychologically-significant 10,000 level. A bullish break here is the more likely outcome; but should this level hold, we could quickly progress a deeper retracement of the dominant bear trend.

The S&P/ASX 200 is on a tear. The three-session rally that began with last Friday is the most aggressive bull wave we have seen since the inception of the solid mid-July to October advance. At the same time, the rally may simply be a correction of the late November plunge that still has traders wondering whether Australian equities are developing a medium-term top. In the meantime, we have notable resistance with the pivot (going back to September) and short-term 61.8 percent Fib of the recent bear correction at 4,750. If this level holds, it could develop a head-and-shoulders formation.

The Hang Seng Index is just off the 15-month highs set back on October 23rd. The trend is still clearly in favor of a test and perhaps breech of this moderate technical level (the 61.8 percent retracement of the December 2007 high to October 2008 low comes in around 22,595). The long-term bias is still well defined by a series of higher swing lows. The only stopping force for Hong Kong equities at this point is momentum. The average true range (ATR) shows the market is the most volatile it has been since mid-August; before the period of congestion and the notable pull back.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

Asian Equity Patterns Scream Reversal

Asian equities may be in a precarious position as suggested by patterns in the Nikkei 225, Hang Seng, and ASX 200.

Nikkei 225

The Nikkei 225 appears most bearish.  Japan’s most important equity index broke from a multi month channel in September on a breakaway gap.  That gap was filled earlier this month when the index was forming what may be a head and shoulders tiop.  The 50 day SMA is above price and sloping down now.  The index is at risk of a downside break.  Under 9629 exposes 9050.

Hang Seng Index

Hong Kong’s Hang Seng is nearing the support line from an ending diagonal (also known as a wedge).  An ending diagonal occurs following a move that’s gone ‘too far, too fast’.  Clearly, the Hang Seng’s Spring and Summer rally fits that description.  The implications are bearish and suggest a return to 17,186 (beginning of diagonal).  The declines that succeed completion of a diagonal are usually sharp. 

S&P ASX 200

After stubbornly riding along its upper channel line, Australia’s ASX 200 turned down in impressive (for bears) fashion.  Still within the 7+ month upward sloping channel, we can’t say for sure that a top is in place, but the RSI divergence leading up to the reversal is typical of important tops.  Structurally, the advance counts well as a complex a-b-c-x-a-b-c (properly labeled w-x-y) correction.  Waves w and y are nearly equal (32.7% and 32.0% rallies respectively).  The next supports are 4261 and 4079.

Australian Equities Ride Channel Resistance

The Nikkei broke down at the end of September but has staged a strong rally since finding a low on October 6th.  A short term resistance line is at current price and weakness off of this level would be a sign that a head and shoulders top is underway since mid July.

The S&P/ASX rally continues to ride along channel resistance.  A total of 19 days touch this channel.  The market clearly deems it worthy.  RSI remains in a divergent condition and even the final portion of the advance channels nicely (in red).  The technical condition of the uptrend is weak.  Coming below the red channel support line would be the first sign that the index has formed a top.

The Hang Seng has more than doubled since its October 2007 low.  I want to show a monthly chart in order to convey that the larger is probably still bearish.  A 5 wave move from at least the mid 1980s is complete and this bear market has only lasted 2 years.  The next move is most likely either lower or sideways (in which case the index would still consolidate at a lower level).

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

Nikkei and Hang Seng Test Support Lines

The Nikkei and Hang Seng are putting support lines from March to the test.  Divergence with momentum at recent highs suggests that breaks of these support lines could mark an end to the 6 + equity rally. 

Nikkei

 

Hang Seng

Australian Equities Face Major Resistance

The ASX 200 (Australian Securities Exchange) made a high of 4750 on 9/17 and has traded down slightly since.  That 4750 level is significant because the August 2008 low was 4759, the 100% extension of the 3073-4079 rally is at 4716 and these levels are defended by channel resistance.  In other words, an extension of gains from here is a serious challenge.  RSI, which is overbought and divergent with the recent price high, also warns of a turn.

Japanese Stocks Test Their Month-Long Range

Nikkei 225

Short-Term Technical Outlook

The Japanese Nikkei 225 extended its pull back from Friday with its biggest one-day drop since the plunge on August 9th. Short-term momentum has been significant; but follow through is a major burden considering the stability support at 10,170 has established. Not only has this level acted as a pivot (previous resistance in June and July, and support ever since then); but now we have the floor in the rising trend channel beginning with the March reversal as well as the 20-day moving average to fortify this general region. A short-term bounce is the more probable outcome; but a bearish break would garner the greater level of volatility in a plunge towards 9,000.

S&P/ASX 200

Short-Term Technical Outlook

Australian shares continue to rise from their March reversal; but progress has certainly slowed – especially in the steep trend beginning in July. Monday’s sharp retracement (the most volatility we have seen in a few weeks) has turned former resistance founded in the long-term 38.2 percent Fib retracement into new support. There is also a notable trendline that can be established through the lows of the past three months; but it has far less relevance from a technical perspective. Watch for any breaks of 4,520 to develop a short-term drop; but the market will struggle for follow through given such dense congestion on the way down.

Hang Seng

Short-Term Technical Outlook

The long-term 50 percent Fibonacci retracement of the 2007-2008 bear wave has proven itself to be a significant hurdle for the Hang Seng Index. While the past two weeks’ upswing has pushed set new highs for the six-month bull wave; the market has not overwhelmed the aforementioned technical level just yet. Should this hold as a double top, it would mark a barrier. However, to truly find their footing, bears would need to produce a lower swing low (a drop below 19,425) to knock this market off its trend.

Written by: John Kicklighter, Strategist for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

While the Nikkei 225 is Nearing a Trend Change, The ASX has Posted a Massive Reversal

Nikkei 225

The benchmark Japanese Nikkei 225 Index suffered its worst sell off since late March. We have been waiting for a sharp move like this after weeks of chop and congestion; but the severity of the move – as well as the direction – is somewhat surprising. In the recent past, moves of this gravity marked exhaustion points that led to the bullish trend reversals on April 28th and July 13th. However, this time around, we are not at the fatigue point of a notable trend. We will have to see what immediate follow through will develop from this aggressive move especially with two notable levels of technical support offering an immediate gauge for conviction. The combined influence from the range of lows from the week before last and the 20-day SMA at 10,250 will be tested straight away. Closing the gap between the aforementioned level and the June / July range high at 10,170 could act as an accelerator should bears really be in control of the market.

S&P/ASX 200

The Australian S&P/ASX 200 has put in for an aggressive reversal formation. Following the most aggressive, bullish rally this market has experienced since the last gasp bull wave back in August 2007, it was inevitable that a break was in store. However, with a clear shooting star formation on Friday and the largest one-day decline since June 23rd, we could be looking at a fast paced retracement. Since the initial advance was so aggressive; we have been left with very few levels to call support. There is modest congestion at 4,345 that could offer a temporary break from volatility should momentum across the global equity space settle into the week.

Hang Seng

The Hang Seng Index was clearly doing without either direction or momentum over the past three weeks. Congestion following the July rally has insured the mid-point of the 2007 to 2008 market collapse would hold around 21,300/50. With Monday’s bearish gap and plunge below congestion support at 20,345 we have our first level of confirmation that congestion is indeed turning over into a trend reversal. There are few significant levels to worry about should a bearish trend develop before 18,825/19,000; so we will have to keep an eye on momentum instead.

Written by: John Kicklighter, Strategist for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

Japanese Stocks Hit Resistance, Australian ASX Benchmark Well Beyond Its Ceiling

Nikkei 225

The Nikkei’s reversal over these past two weeks has been fully charged by momentum. In fact, the Japanese benchmark index has seen its most aggressive advance in over two decades. Now, however, we have come upon the first significant level of resistance to be concerned with. After the gap higher, Monday’s advance was stalled at the same level as the swing high from early July. This is a psychological barrier though and is a direct conflict with the market’s underlying trend. Should the strong bias maintain its course, a forced break could essentially be catalyzed to significant follow through. However, with a long-term 50% Fib 130 points above said level, at least a temporary break seems overdue. How long can this record breaking rally last without some relief?

S&P/ASX 200

Though the Japanese market is the focus among the bullish crowd with its strongest rally in decades, the Australian ASX could arguably be considered a more bullish-centric. Advancing 9 of the past ten active sessions, the advance is steady – if yet still slowing. Resistance at this point is more a condition of momentum rather than solid levels. The chop that preceded the October/November financial seizure offers a wide net to hold technical traders back; but a long-term 38.2% Fib at 4,185 may offer something more tangible to work with.

Hang Seng

The Hang Seng’s most recent, bullish leg has not been as clear as some of its Asian region counterparts; but the general direction and momentum are hard to argue with. Once again riddled with gaps, we have seen this surge push through its range of highs through 18,850/19,000. Looking for potential resistance on this run, there is an immediate level to be concerned with in the 61.8% Fib pulled from the May to October 2008 bear wave at 20,385. Perhaps more prominent is the support this region (20,500/350 offered going back to 2007. However, it should be noted that technical levels on the Hang Seng are rarely held to be exact turning points. Therefore, we will watch momentum rather than hard levels to gauge the potential for corrections.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

Asian Stocks Take a Big Step Towards Bear Trend

The Nikkei’s pull back from eight month highs set in June is not merely settling back into congestion. Japanese shares opened the week with the biggest daily plunge since March 30th. All told, the decline that began when the month started is the most consistent bear wave since before the market reversed to its bullish advance from March. Six consecutive daily declines is at risk of exhausting short-term interest; but any upswing would likely be treated as a correction until new highs are forged. Immediate resistance is seen at the former support pivot level at 9,485. Support is less static – and therefore, bears could have an easier time guiding the market without overwhelming momentum. We will watch 9,000 to 8,550 as a potential congestion zone owing to the chop that developed in this region back in April.

The 5 wave decline from the 2007 high in the Nikkei 225 is wave A in a second corrective sequence that began at the 1989 top.  Wave B (underway now) is expected to reach the area of the former 4th wave, which is far away since wave 5 of the decline was extended.  That area is 11691-14601.  The 50%-61.8% area is 12646-13980.  The Nikkei should spend the next several months working towards mentioned resistance.  Recently overbought RSI however warns of near term weakness.

The ASX 200 has bent the confines of what is still considered a head-and-shoulders (H&S) formation. The sharp decline through Monday would do little for the larger technical pattern; though it has certainly derailed expectations for a rebound from the 3,725 swing low to develop into true rebound. Forcing a bearish breakout below the aforementioned support soon is imperative. Otherwise, without momentum, light chop would find the path of least technical resistance is to pull back up into a range with the ‘shoulders’ of our H&S formation at 3,950. However, even a true break may not necessarily catalyze a clear bear move. There is a lot of chop going back to late March which could delay trend development all the way down to 3,550.

The S&P/ASX completed 5 waves down from its 2007 high in March.  The index should work its way towards Fibonacci resistance over the next several months, which does not begin until 4517.  However, momentum divergence at recent highs warns of a respite from strength

The Hang Seng has taken a big step towards confirming a trend change. Spurred on by the impressive performance of its Chinese home land counterparts, this Hong Kong benchmark may finally have run out of bullish steam. Monday’s close pulled the market down to its lowest close since May 26th. Whether or not this was definitive neck formation on a H&S formation that has developed since late May can only be confirmed with time. This index is highly volatile; so a new low does not necessarily guarantee a catalyst for momentum.

The Hang Seng decline from its 2007 high is also in 5 waves (wave 5 is truncated).  The countertrend rally has reversed just shy of the 38.2% retracement.  The structure of the rally is unclear but stalling at the beginning of the Fibonacci zone and recently overbought RSI favors near term weakness.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

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