Monday, 29 September 2008 22:16:58 GMT
Written by John Kicklighter, Currency Strategist

  • NKY Flat
  • ASX Short (Risk 5,177) (Target 4,400)
  • HSI Flat

Nikkei 225

Long-Term Technical Outlook

Even with the strong rally late last week, it seems unlikely that wave (2) is complete. The next potential support level is 10,635; the 61.8% of the rally from 2003. The area around this level was support throughout 2004 (see circle).

Short-Term Technical Outlook

The congestion that dominated price action for the Nikkei 225 has officially ended. At the open of the week, the Japanese index opened to relatively calm markets (no massive gaps in sight); but shares traded down through the session regardless of the volatility. Now sitting just above a notable pivot level in a multi-year 61.8% retracement at 11,690, the market is set for a dramatic open. Taking the lead from amplified price action through the US session, the nearby support level looks like an easy level to overcome. In fact, considering the US markets had their worst day since at least the 1987 market crash, it is very likely that the Nikkei will gap sharply lower on Tuesday’s open. 11,300 will be the first line to hold the bears back. Whether or not this multi-year low holds could determine the next leg of the market’s larger trend.

S&P/ASX 200

Long-term Technical Outlook

The ASX fell to a new low and rebounded strongly last week. However, there is no evidence that a bottom is in place. The next level to watch for support is the 100% extension of 6852-5040 at 4399. The 50% retracement of the advance from the 2003 low is just below there.

Short-Term Technical Outlook

A global drop in shares helped sustain the falling trend in the S&P/ASX going back to the May swing high. The pull back was relatively modest compared to what we have seen in the European and US trading sessions; but we can expect this momentum to follow through to the Australian markets – at least through the initial open. The support zone around 4,750/800 was already being tested through Monday’s close, and a volatile open looks to plunge through this level quickly on Tuesday’s open. The unknown is how much volatility to expect ahead. It only took a few days to reverse from the multi-month low 4,530 back to back above 5,000; so we can reasonably expect a drop back to the lows of two weeks ago. From there, we will garner the true trend of the market. However, in markets this volatile, reversals can happen occur at the drop of a hat; so breakout traders beware.

Hang Seng

Long-term Technical Outlook

Last week’s comments were that “the Hang Seng will likely continue lower to test the 50% or even the 61.8% of the advance from the 2003 low. The Fibonacci zone is 13924-16179. Watch for support from the line that is drawn off of the 1989 and 2003 lows.” The index plummeted to the 50% last week before rebounding strongly. Still, there is no evidence of a bottom. In fact, the rally is probably wave 4 of c of 2. As such, a new low would potentially complete the entire decline from the October 2007 high.

Short-Term Technical Outlook

For a market that frequently experiences massive gaps and incredible volatility, the Hang Seng’s open on Tuesday could be momentous. Monday’s session was unusual in that it saw no weekend gaps, and the index traded with considerable bearish momentum through the session (this market typically sees major gaps with little follow through during the active trading day). Heading into Tuesday’s open, Asian equity index futures are already calling for an open that is well below respective closes from the previous day. For the Hang Seng, that means that the modest support in 17,900 (where the ‘window’ for the major bullish gap was closed) will be easily dealt with. Watch 16,300 as the next level for the market to consider. More importantly, watch for what kind of price action we get during the active session. Gaps are common – and can be quickly reversed – but momentum during the active session is truly reflective of price the trend. provides free news, trading resources, and market analysis to the trading community.