Technical View – Global Indices

Straits Times Index: Advocate selling on rallies

Same story. Our forecast for the Straits Times Index (FSSTI Index) to decline proved once again to be correct only for the first half of the week as it hit a low of 1,754 while it closed out essentially flat (+8 points for a weekly gain) due to a surge in buying momentum during the second half. Nevertheless, we do not expect such bullish sentiments to remain in the short-term as our Elliot Wave Count continues to signal for a pullback after the index had ascended to the 1,868 mark earlier.

Robust resistance ahead. As mentioned previously, the 1,868 – 1,883 region consists of several key resistance levels which have converged around that area. Besides the upper bollinger band and a technical gap that exists, this level also represents the 23.6% fibonacci retracement level of the major downtrend from 3,269 to 1,455 (the entire Wave C). Given that we do not expect this level to be broken through in the near term, we thus advocate a sell-on-rally stance for investors.

Short-term support around 1,750. Should Wave 2 presently be at play as we had forecasted, the forthcoming downtrend is expected to find initial support at the 1,751 – 1,754 region, courtesy of the 14-day moving average and a trading low. Further support is also located at the 1,697 – 1,710 range as indicated by the 100-day moving average and the 38.2% fibonacci retracement of Wave 1.


Shanghai Composite Index: Selling pressure to be limited to 2,200 – 2,250

Charting out a weekly gain. Contrary to our previous report that a pullback was at hand, the performance of the Shanghai Composite Index (SHCOMP Index) was not within expectations as it registered a 1.0% gain for the shortened week. Going forward, while we had also mentioned that it was unclear whether or not Wave 5 may still be at play, we now believe that this wave may have ended when it hit a high of 2,456 during early Apr 09.

Expecting a turnaround. We are expecting the index to decline in the short-term. Since the previous wave has already been completed, the ensuing Wave A would be set to correct some of the 419-point gain (2,456 – 2,037) that Wave 5 had made over the course of a month. Furthermore, a bearish moving average crossover seen within the MACD chart is also suggestive of downside to take place.

However, strong support at the 2,200 – 2,250 range is not forecasted to give away as it is represented by several key barriers. Besides the convergence of the 50 and 200-day moving averages, this zone also includes the 50% and 61.8% fibonacci retracements of Wave 5. On the other hand, only a break above the resistance level at 2,456 would prove that the entirety of Wave 5 has not run its full course, although we believe this to be unlikely. Nevertheless, further upside would be expected should this occur.


Dow Jones Industrial Average: Still bearish – 100-day moving average a tough nut to crack

Bearish until the 100-day MA is broken above. Our call for the Dow Jones Industrial Average (INDU Index) to register declines was slightly off the mark as it did not touch our support level. For its current price action trend, however, we note that the index has recently tested but failed to produce a clear break above the 100-day moving average (see green line on chart) in at least the past 10 months. We believe that an eventual break above this technical indicator would greatly boost buying momentum – until then, we will be bearish on the index for the short-term.

At turning point. Interestingly, price action during last week saw the index hit a high of 8,087, equating exactly to the 61.8% fibonacci retracement of Wave 5 of C. With momentum not sufficient enough to break above this level, we therefore believe that Wave 1 has already been completed and that the present Wave 2 is expected to drag the index down to lower levels in the short-term.

Where will Wave 2 end? We believe that the current Wave 2 may end when it falls to the 7,469 – 7,543 support zone. This level represents the 50-day moving average and the 38.2% fibonacci retracement of Wave 1 [ derived from 8,087 – 38.2% * (8,087 – 6,469) ]. Should this level give way, additional support is identified at the 7,090 mark. Resistances, on the flip side, are seen at the 8,087 and 8,446 – 8,470 levels respectively.


S&P 500 Index: Targeting the 780 level

Wave Count is similar to DJIA. As with the DJIA, the S&P 500 (SPX Index) could possibly also have seen the completion of Wave 1 on 09 Apr 09 when it reached the 856 mark. This in turn indicates that the S&P is also presently riding on a Wave 2 – given that these two indices have historically traded inline with one another, we therefore are of the opinion that further downside is imminent.

Target for Wave 2 remains unchanged. We believe that the impending fall in the S&P would see the index hit the 779 – 783 range. Besides representing a series of daily lows, this level also equates to the 38.2% fibonacci retracement of Wave 1 [ derived from 856 – 38.2% * (856 – 666) ]. On the other hand, resistance at the 866 – 877 area as identified by a series of daily highs and the 76.4% fibonacci retracement of Wave 5 of C is expected to cap any potential bullish momentum.


Hang Seng Index: Price action to turn bearish

Off the mark. Price action during the previous week saw the Hang Seng Index (HSI Index) break above our forecasted resistance level and above the 15,000 mark which was against our expectations. Nevertheless, we believe that this breakout move is not sustainable and are expecting the HSI to pare off some of these gains. Additionally, the 14-day RSI is also approaching an overbought level which makes the risk-to-reward ratio for engaging in long positions unfavourable.

Wave Count inline with most global indices. As with most of the world equity markets, Wave 2 has also kicked in for the HSI after Wave 1 had ended at the 15,147 level. A conservative price target for the current Wave 2 would find its mark at the 14,250 level [ derived from 15,147 – 23.6% * (15,147 – 11,344) ]; coupled with the daily low seen during early Apr 09, we identify initial support at the 14,250 – 14,276 region. Should this level give way, further support is available at the 13,693 – 13,788 area to cap any additional downside.

Alternate Wave Count. Only a break above the initial resistance area at 15,147 – 15,258 would indicate that Wave 1 is actually still up and running. While this scenario is not our preferred Wave Count and we are not expecting this breakout move to take place in the short-term, the ensuing bullish momentum should push the HSI all the way up for a full retracement of Wave 5 of C at the 15,763 level.















DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months
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Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
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Neutral: Share price may fall within the range of +/- 10% over the next 12 months
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Take Profit: Target price has been attained. Look to accumulate at lower levels
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Sell: Share price may fall by more than 10% over the next 12 months
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Not Rated: Stock is not within regular research coverage



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The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice.

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