Charts suggest the People's Bank of China's move to cut rates will further boost an already-strong uptrend in the Shanghai Composite index.» Read More
Who follows and who leads in markets? The answer is surprisingly different to the answer most people assume is correct.
Intermarket technical analysis is a useful strategy tool for asset allocation. Its also a useful tool for working out what may happen in the future. Its too easy to look at markets in isolation, or to use outdated assumptions about market relationships. This is lazy thinking and in a changing market environment it can cost a fortune.
We publish hundreds of charts each year in our financial newsletter publications and in columns for international and Chinese financial media. The chart below is the probably the single most important chart you will see in 2009. You will need to put aside lazy thinking and assumptions to fully understand it.
This is not a technical chart. It’s a simple combination of 3 indexes, each displayed as a single line. Unlike many comparative charts the indexes have not been rescaled to a single starting point so we can see relative performance in percentage terms. This is not the significant feature of this information.
The charts have been time adjusted so it is easier to compare the behavioural characteristics of the three markets.
We use the Dow Index and the Australian ASX S&P 200 index (XJO) as representative of markets outside the US. The DOW and XJO charts have been time shifted to the left so the absolute market lows of March 2009, match the time of the absolute market low in the Shanghai Index in October 2008. This type of time shifted display clearly shows which market is a leader and which markets are followers.
This chart display confirms that 2009 has seen the most profound change in market dynamics in more than half a century. Put simply, China leads and the DOW follows.
Looks like the wish on your Christmas list this year could be for the Dow to go beyond 10,000, following today's breakthrough. But we look at the charts to find out just how important the Dow's renewed strength is to Asian markets.
Clearly, the break above the 10K mark is an important psychological barrier. Still, it comes with a significant warning.
The chart shows that the strongest historical support is near 10200. This is the area that will provide the strongest resistance and cap any rise from 9,000. This feature is enough to put a damper on the euphoria.
What’s 200 points between friends? Quite a bit when it comes to trading methods.
When it comes to trading methods, 200 points makes a big difference. It’s the difference between a rally trade and a trend trade. The high resistance level at 10200 suggests we can see a short term rally towards this level followed by a retreat and retest of support in the area near 10,000. The ability to hold support near 10,000 will reveal itself if this is:
The breakout above 10,000 is not a surprise to chartists because the Dow shows an inverted head and shoulder pattern and its most clearly seen on the weekly chart. The target level is 11,600, well above the initial 10,200 resistance level.
Trend continuation in the Dow will push markets higher. In Asia, China will add to this tailwind push. These reactions will affect Hong Kong, Korea and Singapore. Watch the Shanghai Composite Index, with its powerful trend consolidation continuation pattern. It is less probable that the Shanghai index will break above 3000 in the current trend rally, but a move towards upside targets near 3400 is developing as part of the Shanghai consolidation pattern.
The key leading index that sets the scene for Asia is the Kospi.
The Australian dollar has hit a 14-month high against the U.S dollar, prompting investors to speculate once again, if the currency will reach parity with the greenback. According to historical charts, that outcome is unlikely anytime soon.
The last time we issued an invitation to the Aussie dollar parity party in July 2008 the Aussie collapsed in surprise.
US food giant Kraft has been in the spotlight in recent weeks following its $16 billion bid for British chocolate firm Cadbury. For investors holding the company's stock, should they buy, hold, or sell?
Takeovers are more about trading strategies rather than chart analysis. The takeover dance usually has 2 or 3 steps and sometimes more.
The dance starts with the offer from the predator to the target prey. This offer is routinely rejected as far below fair value which is decided by an independent valuation report commissioned by the prey.
When it comes to analyzing charts, distinguishing between coincidences and correlation will always prove to be a challenge.
Japan Airlines (JAL) has found itself at the center of a bidding war over the last few weeks, with Delta Air Lines and American Airlines among potential suitors fighting to form partnerships with the struggling carrier. With lenders now calling for a more drastic overhaul of JAL's operations, is this a good time to be holding the stock?
My father grew skeptical of banks and what it represented. A man of the soil, he saw wealthy bankers getting filthy rich on farm foreclosures – one of the few industries, which managed to survive and thrive in those terrible times.
When our version of “The Depression” rattled markets in 2008, his insights reminded me it was time to pay closer attention to the banking sector.
What Lehman’s collapse did was essentially separate the banks with strong fundamentals from those that had none.
We used our charts and analyzed one specific bank: Hong Kong listed HSBC.
Gold glittered on Tuesday as prices rose to their highest levels this year -- futures briefly hit $1,000 while spot prices rose to six-month highs. Will the precious metal continue to shine at this level?
First of all, one needs to understand the behavior of gold prices. Gold attracts more emotional and political attention than any other commodity. Its relationship with portable wealth, money and Government adds a unique character to its behavior.
The well-established resistance level at $1,000 is a psychological resistance barrier and is not related to the supply of gold or the demand for gold. The movement is created by political features that have an impact on currency movements and the U.S. dollar.
Believe the chart or believe your heart? The rapid breakout with AIG from $14 to $30 set up a flag pattern.
The flag pattern is created with a combination of three features. The first is a flagpole. This develops over 1 to 5 days and includes very large price moves. The combined days rocket above the surrounding price activity and are clearly visible on the chart.
The second feature is a bullish flag. This is created when the price retreats from the peak of the flagpole. The retreat can be defined by two parallel down sloping trend lines. The lines do not converge. Converging lines develop a pennant pattern and it is traded differently. The sides of the flag are parallel and slope downwards. This is a bullish flag pattern. The lower corner of the flag should be no lower than 50 percent of the height of the original flagpole.
The third feature is the price breakout above the upper edge of the flag. This breakout is usually very rapid and powerful.
This pattern is used to calculate price targets. The height of the flagpole is measured and this value is projected upwards from the point where price breaks above the upper edge of the flag. This gives an exact price target, which has a high level of reliability. It’s one of my favorite trading patterns.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.