(Bloomberg) -- A rebound in Asian stocks outside Japan may come to an end as the region’s benchmark index approaches its resistance level, CIMB-GK Research Pte said.
The so-called minor wave uptrend in the MSCI Asia excluding Japan Index may falter at 398, 2.2 percent higher than yesterday’s close, CIMB-GK analysts Nigel Foo and Kong Seh Siang wrote in a report today. The index will probably enter a “correction” before posting a rebound, thereby completing its bear market rally, the analysts wrote. MSCI’s Asian ex-Japan index has surged as much as 65 percent from its low this year amid speculation that the worst of the global recession has passed. It fell 0.4 percent to 387.88 at 10:52 a.m. in Singapore today, still 44 percent less than its October 2007 peak.“The MSCI Asia excluding Japan Index remains in a major wave rebound since the March bottom,” the analysts said. “We see no reason to turn positive on the index unless it is able to rally above its resistance trend line of 398 points.”If the gauge rises higher than 398, its next resistance trend line will be at 415, CIMB-GK said. That would be the highest since September, before the collapse of Lehman Brothers Holdings Inc. prompted a global sell-off.
In the U.S., the Standard & Poor’s 500 Index also faces “stubborn resistance” at 930, which marks the 61.8 percent Fibonacci retracement of the index’s decline from its June high to its June low, the analysts wrote. The S&P 500 yesterday retreated 2.9 percent to 896.42 after reaching 931 on July 1.“If we are right, this should complete the minor wave rebound to be followed by one more minor wave down-leg to finish the correction since mid-June,” according to the report. The index may fall to as low as 820, it added.Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates a currency may move to the next level.
Asian Stocks to Drop in Autumn Before Gain
Asian stocks are set to drop over the next few months, setting the stage for a rally toward the end of the year, based on past trading patterns, Citigroup Inc. said. South Korea’s Kospi index may have reached a “near-term ceiling” of around 1,435 and may fall as much as 310 points through autumn, Citigroup analyst Yutaka Yoshino said. The Taiex index in Taiwan may decline as much as 1,890 when it peaks at around 7,080, while Hong Kong’s Hang Seng Index may reach a high of 20,210 before falling as much as 4,270, and then rising again, the analyst added.Asian stocks have rallied this year on optimism that the worst of the global recession has passed. The MSCI Asia excluding Japan Index is up 60 percent from its March 2 low, rebounding from its record 54 percent drop in 2008.
“With pullbacks likely for U.S. and Japanese equities, we could see substantial turbulence from July,” Yoshino wrote in a July 3 report. “That said, if the markets shore up their lows through autumn, we believe they could head for further upside through 2010.”The Kospi rose 0.3 percent to 1,424.58 at 12:29 a.m. in Seoul trading. The Taiex slipped 0.6 percent to 6,625.85, while the Hang Seng declined 1.6 percent to 17,908.09.Following the decline, the South Korean benchmark stock measure could rally to as high as 1,620, Yoshino said. That forecast, a 14 percent gain from today’s level, was derived by adding the magnitude of a previous rebound between March and October 2007 to the index’s lowest point this year, he added.The Taiex could also rise to 8,260 next year after a “phase of bottom building,” while the Hang Seng could climb to 22,260, the analyst wrote. That represents gains of about 25 percent each from today’s prices.
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