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Charting Asia
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Taiwanese stocks have so far, bucked the negative trend of Asian markets this year. The TaiEx is up 5.4 percent year-to-date. Will this rally continue as the year progresses?
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CNBC.com |
The Taiwan market developed the initial uptrend breakout in the weeks following Chinese New Year. This strong initial rally developed a significant retreat in March. The retreat allows for the placement of a longer term uptrend line. This is used to define the developing trend April through to May. The impact of election results are clearly seen on March 24 with a significantly higher gap open.
The key question for Taiwan is to decide if the current trend retreat is temporary, or part of the beginning of a significant reversal.
The bullish features outweigh the bearish features in the analysis of this chart. The most significant bearish feature is the resistance level near 9,100.
This provided significant resistance in July and September 2007 as the market retreated and then attempted to develop a new uptrend.
Interestingly, this level did not provide support as the market declined in November 2007. The most important role for 9,100 is resistance and this has provided a cap to the recent Taiwan rally.
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On the bullish side of the analysis ledger, it is useful to note that a breakout above 9,100 has been strong and powerful, quickly taking the index to the next resistance level around 9,800.
The bullish side of the analysis has many more powerful relationships. The first is the strength of the long term group of averages in the Guppy Multiple Moving Averages (GMMA) display. This separation tells us that investors are supporting this rising trend. They are eager to outbid each other to get new positions when a market retreat develops.
The current market retreat has not shown any compression in the long-term GMMA. Investors are buyers. If investors had become sellers then we would see a compression in this long term group as they joined the traders sell-off.
This wide separation encourages traders to also buy as the index rebounds from the lower edge of the long term GMMA. This analysis is also supported by the long term uptrend line starting in January 2008.
This trend line has been tested twice. The first test was in February 2008. The second test is the cluster of extreme lows in March 2008. The trend line, starting January 2008, is plotted to capture the bulk of the significant price lows.
The significant lows in February and March cannot be excluded from the trend line plot. The exact positioning of the line is a judgement call. The correct placement of the line is confirmed when the index touches this online for a third time and rebounds. This may develop in the next 7 to 10 days.
The strong uptrend has a low probability of collapsing. It has a high probability of successfully supporting an index breakout above resistance at 9,100. This sets the next significant resistance target near 9,800. This pattern of significant retreat and strong trend reversal and continuation is similar to the trend pattern in June through August 2006.
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