Charts Show North Korea Isn't Only Headwind for Asian Stocks

  • Bollinger Bands signal equity gauge fluctuations may widen
  • MACD indicates technology shares may have been overbought

Vanda CEO Ambrose on What's Driving the Markets

As tensions flare on the Korean Peninsula, investors might want to brace for other potential headwinds that could keep Asian stocks from surpassing their highest level in almost a decade.

The MSCI Asia Pacific Index suffered its biggest slump in more than three weeks as global equity markets were rattled the day after North Korea’s nuclear test on Sept. 3. It gained for the past eight months, the longest winning streak since a 10-month advance ended July 2007.

The nuclear test halted a rally in Asian stocks that lasted for three consecutive weeks. In March, the regional benchmark gauge reached the highest level since December 2007 on its third attempt to breach the 76.4% Fibonacci-retracement point from a high in December 2007 to a low in March 2009. The benchmark gauge rose 0.3 percent as at 8:16 a.m. in Hong Kong on Thursday, paring its decline this week.

For a timeline of North Korea’s provocations this year, click here

Narrowing Bollinger Bands signal that wider fluctuations may be in store. The last time the volatility indicator narrowed in June, the MSCI Asia Pacific Index rallied 3.7 percent in July for its biggest monthly gain in six months. But before any potential rally, investors may be tempted to take profit on technology shares.

The MSCI AC Asia Pacific Information Technology Index could retreat back to the 76.4% Fibonacci-retracement support level at 280.78, after it touched the highest since March 2000 last week. The gauge’s moving average convergence-divergence indicator, a barometer of price momentum, has been below the so-called signal line since Sept. 1, indicating downward momentum.

Shares in Australia, which has a weighting of almost 12 percent in MSCI’s Asian index, are the region’s worst performer so far this year. The S&P/ASX 200 Index’s is poised to form a so-called death cross -- when the short-term moving average falls below the long-term -- as tensions in Korea added downward pressure on a market already hurt by banking concerns.

— With assistance by Mark Cranfield, and Matthew Burgess

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