Asian stocks may rise a further 9 percent in its current wave before a “major resistance” line sends prices lower, CIMB Research said.
The MSCI AC Asia excluding-Japan Index may reach 400, a 9 percent increase from the close on Friday, if gains in the current wave equal those of an earlier rally, CIMB analysts Nigel Foo and Kong Seh Siang wrote in a report. The index would face resistance at that level and declines to below 340 would signal an end to the current rally, the analysts said.
The MSCI regional index rose 0.2 percent to 367.93 as of 10:05am in Singapore, extending its 9.2 percent jump last week. That took the index’s gains this year to 28 percent, following its record 54 percent slump last year.
“The MSCI Asia ex-Japan Index stayed on its upward trajectory and closed the week at 367 points, just below the major resistance trend line,” the analysts said.
Elliott Wave Theory, created by US market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value.
Elliott Wave International Inc, a Gainesville, Georgia-based market researcher, said in a report on May 1 that Asian stocks were on the “final leg” of a rally from their March lows and face a “correction” by the middle of the month.
The index’s “major resistance trend line” is at 375, while a 38.2 percent retracement on the so-called Fibonacci chart would be at 401, the analysts said.
The 14-day relative strength index, a moving average based on how rapidly prices rise or fall, is also at 78, higher than the 70-level that indicates to some analysts that prices are set to fall.
“Our concern is the daily technical indicators, which are extremely overbought,” the analysts wrote. “A major peak could take place in the next few weeks, followed by a long-overdue sharp correction.”
Meanwhile, Asian shares extended their rally yesterday and riskier assets such as the euro held on to recent gains, but warnings about an impending pullback are growing amid weak corporate results and views that any global recovery will only be gradual.
For now, traders focused on a smaller-than-expected number of job losses in the US that reinforced expectations that the global economy, while still weak, may have hit bottom.
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