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Asia Pacific Strategy - Equity correction still in progress

Shared By Stock Fanatic on Wednesday, April 25, 2018 | 25.4.18

■ S&P 500’s and MSCI Asia ex-Japan’s wave “a-b-c” are still ongoing from Jan high.

■ However, over the past few weeks, we also see a potential triangle formation for both the S&P 500 and MSCI Asia ex Japan.

■ WTI crude oil appears to be meeting our US$71/barrel target.

■ We believe US 10-years govt. bond yields started the next up leg towards 3.2-3.3%.

■ Vietnam Stock Index holding just above support trendline at 1,080pts.

S&P 500 and MXASJ still in correction phase
From the Jan peak, we were looking for a wave “a-b-c” correction for the US S&P 500 Index and MSCI Asia ex-Japan (MXASJ). So far, both indexes appear to be trading in the wave “a-b-c” formation pattern and if we are right, both indexes are currently doing their minor wave “c” downleg.

Potential triangle possible for both S&P 500 and MXASJ
Interestingly, we also see a potential triangle formation pattern for the S&P 500 and MXASJ over the past few weeks. If this triangle formation is taking place, the S&P 500 should not break below the last 2,553pts low and the MXASJ should not break below 702.5pts. Breaking below these levels would negate the triangle formation pattern.

Bloomberg Dollar Index showing strength
The Bloomberg Dollar Index has been trading sideways over the past three months but the Index broke above the previous 1,139 pts high this week, which should be medium term positive for the US$. Weekly MACD has turned positive and weekly RSI has broken past its resistance trendline, which is also medium term positive.

WTI crude oil targeting US$71/barrel levels
WTI crude oil is looking to target our earlier US$71/barrel target, which is wave “C” equals length of wave “A”. After trading sideways for more than two months, crude oil prices started to rally over the past three weeks. What is interesting is weekly RSI and MACD are showing potential negative divergence signs, usually signs of a tiring uptrend.

One more upleg for US government bond yields
The US 10-year government bond yields have started the next upleg towards the 3.2- 3.3% levels before a more sustainable correction kicks in with immediate resistance trendline at the 3.2% levels. After this upleg ends, we are not sure what would be the end of wave 3 or just wave 3 (i), which is only the first upleg for wave 3.

Singapore STI to test new highs?
Singapore’s STI Index seems to have already completed the wave “a-b-c” correction and is looking to test the last high at 3,611pts in end-Jan. Weekly relative strength index (RSI) and MACD are showing negative divergence signs, usually signs of a tired uptrend.

Vietnam Stock Index just below support trendline
The Vietnam Stock Index weekly chart shows the index is currently below its support trendline at 1,080pts. Failure to hold above this support trendline would mean more downside potential for the index. Although the weekly moving average converge divergence (MACD) has not shown any negative divergence signs, the weekly RSI has been showing negative divergence signs since end-2017. (Read Report)

Source : CSG CIMB Research


Posted on Wednesday, April 25, 2018 | 25.4.18
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