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Tuesday, May 5, 2009

Global Equity Technicals

Extended wedge formation. We were expecting the DJIA to break down from its
wedge formation last week but it continued to rise further towards the 8,300 levels
before correcting end of last week. The Index could still be in an extended wedge
formation and the breakdown the wedge support trend line at the 8,100pt would
confirm the end of this pattern.
• If we are wrong… If we are wrong, our alternative wave count shows that DJIA
could have already started its minor wave “c” up leg after completion of the wave
“b” triangle consolidation since early Apr last week (refer to chart below). This wave
count is supported by the breakout of the major resistance trend line since Nov-08.
Confirmation of this alternative wave count if DJIA breaks above 8,300pt.
• US banking stocks remains in consolidation phase. If banking stocks are
leading the market, DJIA is still in an extended wedge formation. The KBW Bank
Index has just broken down below its uptrend channel support trend line since
early-Mar. This indicates further consolidation in the immediate term for the Index.
• Crude oil uptrend is not over. We were looking for crude oil prices to break down
last week but the price has since bounced back above the US$53/barrel levels.
This has negated our preferred wave count and a likely “double zig-zag” is taking
place, targeting the US$60-70/barrel levels in 2H09.
• Channel breakout. MSCI Asia ex-Japan Index (MAxJ) only experienced a mild
correction last week and closed strong for the week at 336. The Index just broke
out of its channel resistance trend line since Nov-08. This is a positive sign if the
Index is able to hold above this trend line over the next few weeks.
• Still expect consolidation. However, we still expect Asian equity markets to
consolidate over the next few weeks to build up a support base before charging up
in June-July. If RSI breaks out of its current consolidation range, this would likely
indicate that Asia has kick started its next up leg towards the June-Jul period

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