Asia equity technicals - Pause for now?

Rally continues... Asian equity markets continued to head higher, driving the MSCI Asia ex-Japan Index (MAxJ) to as high as 319pts this week, a gain of 33% from the low in early Mar.

…but shows signs of peaking. However, the markets are showing signs of peaking this week. Most of the Asian benchmarks have completed a “five-wave” uptrend and should pull back this week. The MAxJ’s daily RSI also looks overbought at 70.

Wave “a” rebound has already ended? If we are right, Asian markets probably completed their wave “a” rebound from the early Mar bottom this week. However, volatility is expected to remain the order of the day and we would not be surprised if Asian markets attempted to challenge their highs before correcting. Our alternative wave count calls for just one more up leg into mid-April before completing wave “a”. This should be followed by the corrective wave “b” which could take anywhere between two and six weeks to complete, to be followed by the final bullish wave “c” up leg.

Correction has kicked in for DJIA? We read the DJIA’s sharp pullback on Tuesday night as likely confirmation that the index is correcting in an “expanded flat” formation. If we are right, the minor wave “c” should take the index to around 7,300pts before bottoming out in the next 1-2 weeks and completing wave “b”.

Bank Index looks technically weak. Supporting the correction phase for the DJIA is the KBW Bank Index (BKX Index) which looks technically weak in the immediate term. Since 19 Mar, it has been displaying negative divergence signs, trading sideways between 26 and 31pts. A break below 26pts would be bearish for the index. The daily indicators are on the verge of turning negative. The MACD is close to confirming its bearish “dead cross” while the RSI is 51, just above the 50 neutral mark.

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