Asia stock markets start 'mini-mania' rally: technical analysis

A measure of technology shares on the Shenzhen Stock Exchange has completed the first two parts of its final wave and may rise a further 15 percent, even as the broader Shanghai Composite Index lags, Elliott Wave International said. The researcher said the TWSE Information Services Industry Index, part of Taiwan's benchmark Taiex index, may advance another 15 percent amid a so-called contracting triangle. “Most Asian-Pacific indexes need one more significant leg up to complete their wave patterns,” Elliott Wave said in a Dec. 4 report. “As often happens during the final leg of a rally, high-beta indexes are leading the general markets higher in a 'mini-mania' blowoff run.” The MSCI Asia-Pacific Index has rallied 70 percent from its year's low on March 9 amid speculation that the worst of the global economic recession has passed. The gauge has risen 34 percent this year, rebounding from last year's record 43 percent slump.

In India, the Bombay Stock Exchange Infotech Index may also gain further as its fifth wave is still relatively short compared with earlier advances, the research company said.

Similar gains may be in store for South Korean and Japanese shares, as signaled by a possible contracting triangle in the Kosdaq Star Index, which tracks the nation's largest high-growth companies, and a rebound in the Tokyo Stock Exchange Mothers Index in Japan, where the Nikkei 225 Stock Average is exiting a “complex correction,” according to the report.

Elliott Wave Theory, created by U.S. market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value. In a contracting triangle, the first wave is the longest while the fifth wave is the shortest.

Still, the rally in regional equities may be about to falter, as indicated by patterns in the stock indexes of Bangladesh and Vietnam, according to Elliott Wave International.

“Peripheral markets have begun to warn that the region's multi-month rally is near an end,” the research company said. “Bangladesh's Dhaka General Index has gone parabolic at the end of a 10-year bull market and Vietnam's stock market has completed its multi-month advance and plunged, as it did months ahead of the rest of Asia in 2007.”

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