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Friday, April 24, 2009

Sharp Pullback Seen !

• Wedge breakdown points to 7,400 target. The DJIA broke below its wedge
formation early this week, confirming the end of the uptrend that started in early
Mar. At the very least, the DJIA should retreat to 7,400, the start of the wedge
formation. For the S&P500, the wedge target is 780pts.
• Deeper correction than 7,400? The DJIA may descend below the 7,400pt target.
Its MACD has just confirmed its bearish “dead cross”, which signals more
downside in the immediate term. Asia’s equity markets also look vulnerable in the
near term with the likely end of both the stockmarket rally in China and crude oil’s
rebound.
• End of China’s rally? China’s stockmarket upswing since Oct 08 may have ended
this week. A critical support for the Shanghai Composite Index gave way this week,
a likely sign that the bull run has ended. Furthermore, the daily RSI has not been
able to overcome its major resistance trend line since 3Q08. The key support is the
50-day SMA at 2,307pts.
• Crude oil heading south? The end of China’s stockmarket rally is also in line with
the likely breakdown of crude oil prices in the coming weeks. Crude oil price
recently broke down from its triangle consolidation. The major daily MACD support
trend line since Dec 08 caved in a fortnight ago while the RSI has not been able to
overcome its major resistance trend line since Dec 08. This could indicate the end
of crude oil’s rebound since Oct 08. The wave 5 down leg could be taking place,
taking crude oil back to the US$30/barrel level in the next few months.
• Consolidation ahead for Asia. The MSCI Asia ex-Japan Index (MAxJ) confirmed
its MACD bearish “dead cross” this week. The last time this happened was in Feb
09. The 200-day SMA at 323 remains a major resistance. The near-term support
trend line collapsed this week, a likely indication of more consolidation ahead. The
key support is at the 50-day SMA at 282 and the 50-61.8% FR at 276-287.

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