Asian Stocks Correction Is ‘Long Overdue’: Technical Analysis

(Bloomberg) -- The MSCI AC Asia Pacific excluding Japan Index may lose as much as 16 percent in the next two to four weeks as a decline is “long overdue” after a seven-week rally, CIMB Research said. The measure may fall to its 50-day simple moving average of 278 within the next month, CIMB analysts Nigel Foo and Kong Seh Siang wrote in a report today. That’s a drop of 16 percent from today’s high.The MSCI regional index rose as much as 1.6 percent to 331.66 today, taking its gain from the year’s low on March 2 to 37 percent. The index’s relative strength index climbed to 72 yesterday and may be capped by its so-called upper trendline channel and its 200-day simple moving average of 327 points, the CIMB analysts also said.

The MSCI index “is long overdue for a correction,” the analysts said. “The daily RSI is overbought at 72 and the index is also facing major resistance.”Trendlines are used by technical analysts to determine momentum in a market. They are found by connecting the dots between a market’s highs and lows.The analysts are also predicting losses for U.S. stocks over the next two to six weeks, saying that the Dow Jones Industrial Average is poised to fall to as low as 7,110, based on a so-called Fibonacci chart. That’s a 12 percent retreat from yesterday’s close.The ratios used in Fibonacci analysis are based on the sequence identified by Italian mathematician Leonardo Fibonacci in the 13th century to predict support and resistance levels for prices.

A key support for the Dow Jones Industrial will be at 7,537, its 50-day simple moving average, the CIMB analysts also said.