RI stocks bottom out

RI stocks bottom out

Andrew Torchia, Dow Jones, Singapore

Hit by terrorism, a sluggish economy and the indifference of
most foreign investors, Indonesian stocks may not seem like a
good bet. But the charts say the downside risk is low and the
impressive rally of the last two months could continue a while
longer.

The JSX Composite Index, which touched an intra-day low of 323
in mid-October just after the Bali bombing, has staged an
impressive rally since then, and several technical indicators
suggest 323 may prove to be a long-term bottom.

Most importantly the index, which closed yesterday at 383,
broke cleanly in mid-November above its downtrend line from June.
That was a very positive sign, implying at a minimum that the
market should consolidate sideways with a firm bias in subsequent
weeks.

Secondly, the market has formed an uptrend line from the
October low; the trendline now comes in at about 378 and is
rising by nearly two points per day.

Oscillators on the weekly chart are turning bullish; momentum,
for example, is still negative but at its highest level since
June, when the market had only recently begun its spectacular
plunge from April's high of 557. Strong longer-term oscillators
imply the market's rebound could be an extended one.

Finally, the market has in the last few days completely filled
a technical gap between 357 and 374, which formed in mid-October
and acted as resistance at the start of November.

The upshot is that the JSX appears to be well supported.
Initial support is on the uptrend line at 378; if that breaks,
the market will consolidate with a weak bias for a few days. But
even if the trendline gives way, there will be significant
underlying support at the mid-November peak of 375, and strong
underlying support at the mid-October peak of 363. Following the
break of a fairly long-term downtrend line, the market is
unlikely to return to the October low in coming months.

How high could the JSX go? It's a good bet that the index will
rise in the next few weeks to strong underlying resistance at 401
(the late September trough, and roughly the 38.2 percent
retracement of the April-October downmove). If that breaks, the
market should head for its next major barrier at 437 (lows in
late July and early August, and the 50 percent retracement).

Two technical factors make one cautious about predicting major
gains. One is the fact that MACD on the weekly chart hasn't so
far staged a bullish crossover, though such a crossover is likely
in the next week or two if the market stays firm. The other is
that volume hasn't really risen much during the recent rally; if
volume does swell, it will confirm the uptrend.

So while it's a good bet that the JSX will reach 401 in the
next few weeks - the slope of the uptrend line says this should
happen by mid-December - the possibility of reaching 437 looks
more dodgy at this stage.

Nevertheless, downside risks for the JSX have clearly shrunk
in the last few weeks, and the market's outlook is looking better
than it has done at any time since the middle of this year.