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Vietnam Under Pressure

Tuesday, 20 Jan 2009 | 12:31 AM ET

The Vietnam market remains subject to significant investor selling. The attitude of traders and investors can be derived from the behavior of the two groups of averages in the Guppy Multiple Moving Averages (GMMA) indicator.

Wide separation in the long term group of averages – shown in red – shows that investors are sellers. When the rebound rally developed in mid-2008 it was clear it had a limited lifespan. The long-term GMMA did not compress. Investors used this rally as an opportunity to sell into the rally.

The rally did however, establish a new resistance level near 540. This will be significant when the market does recover. The rally retreat developed some support near 360. This allows the tentative plot of a support/resistance level.

Consolidation activity has developed near 300. This support level also acted as support in late 2005. This does not provide an immediate rebound and trend change point, but it does suggest the momentum of market decline is slowing. Successful retests of support at 300 may develop a small trading band between 300 and 360. In this situation the width of the trading band is used to set upside and downside breakout targets. A move below 300 has a downside target near 240. A move above the upper edge of the developing trading band at 360 has an upside target near 420.

Vietnam, as with markets all around the globe, is experiencing severe downside pressure. The long-term GMMA is well separated and this limits the rise in any rally rebound from 300. It requires a very strong rally to move through the long-term GMMA. Effective and substantial resistance is near the upper edge of the long-term GMMA at 500.

This is a traders market, looking for short-term rally rebounds. The most important leading indicator of consolidation and developing trend change is given by the long term GMMA group of averages. When the long term GMMA group of averages shows compression in response to a strong rally rebound it tells us that investors have stopped selling. Compression shows a shift in investor sentiment and this is a signal for traders to develop long term positions.

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The high probability outcome for 2009 is a series of rallies, each stronger than the previous rally, but each starting from a lower support level. A rally from 300 has a high probability of retreating from near 400 and falling to support near 240. A rally from 240 has a good probability of rising to 360 before retreating. Long-term consolidation using 240 as a support level is the outcome of most interest to investors.


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