Geopolitical tensions between Ukraine and Russia has accelerated the rally in Nymex oil prices that started in the week of January 18.» Read More
Starting September 2008 the Shanghai Composite Index has been steadily rising, a remarkable performance in this dismal environment.
First, the SCI stopped falling – a feat which Western markets have yet to emulate. Secondly, it's developed a consistent sideways trading pattern which is a signal of consolidation. The Shanghai market is entering the Year of the Ox, and it may well be the start of a bull year.
Earlier this week, a reader of my India market newsletter asked if I could analyze Satyam Computer Services. I prepared these notes on Monday (5th January) based on the weekly and the daily chart. On Thursday morning, I returned from Beijing to find the same stock was front page news. These are the notes prepared three days before the breaking news.
The stampede out of equities has driven investors towards safe haven assets such as the Japanese yen -- a currency that has risen sharply this year as its appeal grows whenever risk appetite wanes. With the financial crisis expected to intensify, analysts are now expecting further support for the low-yielding yen. Just how much higher can it go against the U.S. dollar?
It's the season of joy and goodwill. Except, there isn't much joy to be found amidst our gloomy economic situation. Will Santa arrive? Will he deliver a personal U.S. Treasury-funded bailout? Will it be a Madoff doll or brand new GM Chevy SUV? Will investors buy into the promise of future delivery based on credit earned for good behavior?
The American Big Three—General Motors, Ford, Chrysler— have followed a steady trend downhill. GM and Ford's stock prices have deflated like a punctured tire. However it looks as if Congress will pump back some air into the Big Three through an emergency rescue package.
Toyota is a different story.
Unlike the U.S. automakers, which show a ski slope trend line, Toyota's ADR chart is dominated by a head and shoulder pattern . These are reliable chart patterns that set achievable downside targets. The weekly chart shows a well developed head and shoulder pattern. The distance between the neckline and the head of the pattern is measured. This value is projected down to set the downside target. Toyota achieved this $55.00 target.
So what next? The answer is provided by the behavior of other stocks and indices which are further advanced in this pattern development. In these market conditions, the head and shoulder pattern targets have been exceeded by around 18 percent. Apply this average to Toyota and it suggests a $45.00 downside target. This potential is further confirmed because the $55.00 level is not an established historical support level.
The common pattern of behavior following this extra dip below the head and shoulder pattern target level is the development of a fast rebound rally. This is then followed by a retracement and another rebound. This activity develops a symmetrical triangle pattern. This is a pattern of indecision. We have indicated on the chart where this pattern could potentially develop.
The symmetrical triangle pattern shows there is still strong selling pressure. This pressure is defined by the down trend line. As the price rises, existing stockholders sell into the market. This selling -- desperately chasing falling prices to capture a small profit -- sets the downtrend line.
The uptrend line is a buyers line. Buyers wait for prices to fall and when the bargain price is irresistible, they re-enter the market as buyers. The up sloping trend line shows some buyers are becoming more optimistic. They are not prepared to let the price fall as low as in the past before they come into the market as buyers. This is a mildly bullish result, so it seems strange to call this combined pattern a pattern of indecision.