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.