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Thursday, January 24, 2013

CAL Securities Technical Analysis - 1Q2013 CSE Technical Outlook

EXECUTIVE SUMMARY

On a longer term perspective, CAL’s technical interpretation of the market is positive as long as the December low of 5323 is not broken. A downtrend line dating back from September 2011 high has been broken and this is a positive development. We would like to see a close above 6000 to confirm a new wave up and further bullish momentum.

In the short term, CAL Securities' technical analysis suggests that the market has been consolidating during the past week and is trading in a tight range (5895-5860). We are currently neutral from a short term perspective.

 If the market closes below 5860, then you should see selling accelerate and find the market heading down towards support at 5800/5750. Trend line support exist at 5750/5800 levels.

 Conversely, if the market closes above 5900 then a target of 6000 (October highs) looks likely.

 The target price for the inverted head & shoulders breakout was achieved last week at 5890.

In order for us to recommend more buying, we are waiting for the 6000 levels to be taken out. In the medium term, if the market breaks below the January 8th low of 5719, the bias will shift to the bearish side and we should see 5600 levels tested.

CAL Research's fundamental view on the CSE is also positive, with total one year returns of 20% expected in 2013 based on 17% EPS growth and a dividend yield of 3%.

Technical analysis is not fool-proof; no method is. For that reason, one of the most important parts of this method is its ability to let you know when the forecast may be wrong, so you can act quickly and limit your exposure risk.

LONG TERM ANALYSIS OF ALL SHARE PRICE INDEX

On the monthly time frame we can see that the ALL SHARE PRICE INDEX encountered a correction from February 2011 to June 2012. The market had rallied 6379 points from the December 2008 low to the February 2011 high. The correction ended at 4725 (June 2012) with an pproximately 50% retracement of the entire bull market.

After rallying to 6000 in October 2012 from 4725, the market had corrected 50% yet again to make a low of 5323 in December 2012. From a long term point of view, as depicted on the graph below, the market will stay bullish as long as ASPI does not close below 5323.


    
                                            (click image to enlarge)

TRENDLINE BREAK

Please note that we have broken a descending trend line (black line on the chart). This is evidence of a bullish development taking place. We would like to see the market close above 6000 to confirm bullish sentiment and bias.

50-MONTH MOVING AVERAGE

The ASPI took support at the 50 month moving average in June 2012 (4725 levels). Until the ASPI breaks below the 50 month moving average the long term bullish nature of the ASPI will not change.

MEDIUM TERM ANALYSIS OF ALL SHARE PRICE INDEX

On the daily charts we see a breakout through an inverted head & shoulders formation. After the breakout, which occurred during the last week of December, the Index has rallied to 5895. The target price for this breakout is 5850/5900 and we have successfully achieved this target. This target has been calculated by measuring the distance between the head and the neckline. It is annotated on the chart below.

   
                                          (click image to enlarge)

We are currently seeing a shallow correction at this level, but the October 1st high of 6000 will be a larger barrier and the index needs to move above that level for the next move to begin.

If the market was to close below the January 8th low of 5719, then that will shift momentum to the bearish side and the market will probably test the 5600 level (yellow line annotated on the chart below). Until that happens, the market is still looking to move higher. You will also notice that the 200 day moving average is located at 5550 levels and this will also be a major support zone.


SHORT TERM ANALYSIS OF ALL SHARE PRICE INDEX

Please observe the 60 Minute Chart (intraday) of the ASPI below.



                                       (click image to enlarge)

After witnessing a “Santa Clause rally” between 20 December 2012 and 7 January 2013, the market consolidated its gains. Thereafter, the ASPI rallied approximately 160 points between 15 January and 18 January 2013 (5895). Any close below 5860 (pivot low shown on graph) will shift SHORT TERM momentum to the downside where the market will see support at 5750-5800 levels. Until that happens, signs point to further upside movement with a target of between 5950-6000.

Please note that RSI has not fallen below 50 since early December. That was the time when the market started rallying from 5323. If the market RSI breaks below 50, then you could see more selling pressure.

 source - CAL Research

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