Today's interesting charts
Comment of the Day

February 27 2013

Commentary by David Fuller

Today's interesting charts

David Fuller's view Price charts show you when the consensus view is no longer sustained by market action.

China's SHASHR Index (weekly & daily) has fallen a little over 7.5% since its recovery highs in February. This setback, which ended uptrend consistency characteristics evident since the early-December low, has clearly been influenced by China's latest efforts to curb real estate speculation.

The reaffirmation of this policy has understandably led to some uncertainty regarding China's monetary policy.

(See also my lead item on Thursday 21st February: China Orders More Cities to Restrict Housing Purchases, which discusses this issue in more detail, prior to an additional chart review.)

Currently, the A-Share Index shown above reveals some loss of downside momentum in a region of lateral trading near 2400. However, a significant recovery from the decline since China's New Year week-long break is required to confirm more than tentative support in this region. Moreover, without any new upward dynamics, a further drift towards the 200-day MA could occur. If that is pressured we can expect a potentially lengthy right-hand extension consolidation phase before the recovery is resumed. With the decennial political handover still underway, China has yet to convince investors that property speculators are an isolated target within a broader reflation of the overall economy.

Vietnam's SE Index (weekly & daily) has backed away from psychological and lateral resistance near 500. Moreover, the downward dynamics seen suggest that the early-February high will not be cleared in the near term. While the reaction looks oversold in the short term, we have yet to see any technical evidence that it has ended. The next region of potential support is near 440.

Japan's Nikkei 225 (weekly & daily) has enjoyed a rare and fully justified initial run to the upside. However, it is overextended in the short term, looks tired and had an upside failure on Monday the 25th. Add in the global corrective / consolidation phase for stock markets and Japan appears temporarily vulnerable to the downside. This would be in line with the USD/JPY (weekly & daily) pullback resulting from a big weekly key reversal, entirely due to the daily key reversal on Monday. I assume that the yen has to weaken once again before Japan's stock market extends its recovery on the improved earnings outlook for Japan's exporters.

The three markets above remain very interesting medium-term recovery candidates. This is particularly true for Japan, provided Shinzo Abe's popularity holds and he is successful in nudging the yen lower in the months ahead. Japan's Achilles' heel in the strategy of partially reversing last year's serially overvalued currency is the cost of energy. Therefore, it needs to restart its remaining nuclear power stations which are still viable, and it also needs a calm pricing environment for gas, oil and coal, most of which it has to import.

The US stock market's recovery yesterday and today, virtually offsetting Monday's big downside dynamics on daily charts for the Dow, S&P, NDX, TRAN and UTIL is encouraging for global investors at a time of understandable nervousness as other stock markets react and consolidate, often from overextended positions where rallies occurred from November through January.

I have also used 10-year weekly charts for these US indices so that subscribers can see how the Dow and S&P are challenging their 2007 highs. Interestingly, the NDX is well above its 2007 levels, despite Apple's fall from iconic status, back to being an important member of the crowd. I attribute Wall Street's performance to four factors: 1) Mr Bernanke's QE which will remain a tailwind while it lasts; 2) 'Export earnings' (that description is no longer adequate for these global players benefiting from globalisation, particularly among NDX companies); 3) The USA's domestic energy price advantage for manufacturers, which is particularly beneficial for those companies which produce capital goods; 4) The accelerating boom in all forms of technology, which the US mostly leads. These factors are also positive for TRAN and UTIL, albeit slightly less so.

Interestingly, we hear little about the USA's energy advantage, although Fullermoney frequently mentions it, while the financial press remains obsessed with the budget and spending battle. From my admittedly 'across the pond' perspective, Mr Obama holds most of the cards, given the power of the White House and he also has Mr Bernanke on his side.

Lastly, while the US stock market is holding up well, this corrective and consolidation phase probably has several weeks and perhaps longer to run. Therefore, watch the current range lows on daily charts for US indices above. If / when most of them close beneath their ranges, a somewhat larger pullback will have commenced.

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