A drop in commodity prices and waning demand from China pushed the Australian dollar to fresh lows, and now the currency faces a test of key support.» Read More
Investors who hope for a Santa Claus Rally in stock markets this year are still waiting. This is a typical annual occurrence when equities post modest, but reliable, gains in late December into the beginning of early January.
But so far, Santa's cheer has eluded Wall Street - the Dow Jones Industrial has traded flat for most part of December.
Investors should be mindful, however, that there has already been a rally, pre-Santa; one that's been in place earlier on this year - March to be exact. Since then, the Dow has risen from 6,500 to the current 10,500 level. Even investors who hopped on in July at 8,000 have had a good sleigh ride.
The question remains: where will the blue-chip index head from here? Will Santa continue to scale higher or will this sleigh ride come to a slow, or perhaps sudden, end in 2010?
The charts can provide some clues to the direction of the Dow.
Two years behind schedule, Boeing is finally ready to test-flight its hotly anticipated aircraft, the 787 Dreamliner, Tuesday.
Copenhagen might be a hot topic of discussion, but the winds of change have failed to ignite the DJ Alternative Energy Index to a new trend. This index is becalmed in a sea of indifference, trading in a flat trading band.
We'll start by defining the activity (or lack of it) from a charting perspective. Then we'll look at two break out patterns of development which show where changes may be afoot.
The gold price has moved quickly and it has developed an important new uptrend characteristic. This so-called 'parabolic' trend is a dangerous type with a high probability of a sudden collapse.
The Dollar Index chart provides some insights into the decline of the U.S. dollar, and ultimately its position as a global reserve currency.
The best historical view comes from the monthly chart. It shows the dollar has been locked in a substantial downtrend since 2002 when the Dollar Index fell from $1.20 to $0.81 before a rally to $0.91 followed by a fall to $0.71.
Turn off the lights and you can see the gold bugs glittering. The rapid rise in the gold price driven by Indian central bank buying appears to confirm their wildest dreams.
Japan's benchmark stock index the Nikkei Average fell below the 10,000-level for the first time in three weeks last week, and has since had little success maintaining its upward momentum.
From a chartist's point of view, the index will continue to struggle in the near term.
The Nikkei has a similar behavior to the Korean KOSPI Index, which I've explained in an earlier blog, defines the pattern of market recovery behavior in Asia .
Its tempting to suggest that the 'V'-pattern recovery seen on the Microsoft chart reflects the behaviour of the unpopular Vista operating system and the announcement of its replacement with the newly released Windows 7.
According to technical charts, however, that's not the case.
The rebound from the lows near $15 did not coincide with the rumours of Vistas demise and replacement. The rebound reflected the normal behaviour of Microsoft.
This is not a stock that has long and stable trends. It is a stock that has extended rallies and retreats which makes it suitable for position trading. These are directional trades that may last for several weeks, or months.
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.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.