Monday, 27 June 2011

Why I Still Like Asia

Morning All,

I had a question the other day from a reader who wanted an update on the Chinese and Indian markets.  In the past, I had shown broad consolidation patterns for both these regional powerhouses and now is an opportune time to update.

I put out a post the other day on the most important rule in technical analysis: I wrote this to try and illustrate the weaknesses in "classic" technical patterns that most of the market look at, and to try and prepare myself for a possible bullish reversal when all was looking doom and gloom. Obviously I had no idea if these patterns would fail but my experience has taught me to be very wary in such situations. My central point is- if a market fails to follow in the direction of a trading signal and pattern, it is a strong indication of a strong reversal in the opposite direction. I believe we are now seeing this reversal in the Shanghai Composite, the Hang Seng and the Nikkei. Other regional indices are also holding key zones. It is obviously still very early days and US indices are hardly looking rosy. However, I like these risk/reward setups in the short term.

Firstly, to China. There was a close below the big weekly triangle pattern that brought the bears out. It is at these times that fear hits a fever pitch as shown in some of these posts: and the mighty Goldman Sachs head technical analyst (go to page 12 of this report re Shanghai Composite): This break was complety recovered and we have now seen a strong bullish engulfing candle.

Shanghai Composite Weekly:
Bullish engulfing candle just after a spillover of the trendline.

Shanghai Composite Daily:
Bottoms right on the 61.8 retrace. No follow through from the breakdown of 2650. Back to back strong bullish candles. Need 2750 to break to upside to get this bear squueze really fueling.

Hang Seng Daily i:
Looked like a breakdown of the range but....

Hang Seng Daily ii
.....there was no follow through. Shown this a few times of late. We have a A=C complete move lower i.e. a low turning point, price hit and reversed right out of the low end of the channel, and price is now testing the 22k breakdown zone. Look for breakout trades above 22k.

India Daily:
My original consolidation pattern months back did not lead to a breakout. Price was capped by the downward sloping trendline.

India Daily ii:
However, price has now tested and held the previous lows with a strong double bottom pattern in place. I tweeted about this zone during the week. Speaking of failed breakdowns, this also looks like a huge failed breakdown of a multi month triangle pattern. Price has recaptured the upward sloping trendline with a very strong reversal candle.

Nikkei Daily:
Price failed to breakdown through 9400. Now seeing a good breakout of the wedge pattern and looking for a retest of 10,000

Singapore Daily:
Broad consolidation pattern still intact. Price tested and held low end of trendline. Look for breakout of this recent range for a strong thrust higher

Like ever, being flexible and heeding price action are the key skillsets for successful trading. Hopefully some of these patterns and updates illustrate this. Good luck