>PRICE ACTION (CLSA)

Technical views on global and Asian market

■ Intermarket analysis. In this piece we review the technical levels for copper (HG1 - $230.50), crude oil (CL1 - $69.19), the US dollar index (DXY – 79.8) and the US long bond (US1 – 118.35). Since the summer of 2008 these markets have tendered to move in opposite directions depicting the markets sentiment towards inflationary and deflationary fears. The idea it to identify the key levels in these markets which would suggest that the deflationary pressures have reemerged.

■ Asia: The road ahead. What we see developing over the second half of the year for Asian markets, represented by the MSCI Asia ex Japan, from a technical perspective is:

• A mid July peak, closer to the 405-430 range. The key markets that are expected to drive the index higher in the short-term are Taiwan, India, Indonesia, Singapore and Hong Kong.

• This final thrust higher should be followed by a partial retracement of the advance off the March low. We would focus on the typical retracement levels, 50-62% of the advance, near the 300-330 range (20-30% decline).

• We would look at using the summer weakness as a buying opportunity for another cyclical advance.

• Our preferred markets to look for buys on weakness during the summer months: Indonesia, India and Taiwan.

• We believe that the biggest risk to our preferred roadmap is that Asian markets continue to squeeze higher in a rising wedge type pattern.

■ US: Big picture. In April we placed a chart of the S&P500 over the Dow Jones Industrial from 1937 to 1942 and noted the remarkable similarity. Such analogies rarely work to perfection, but given the striking replication this one bears watching. The large trading range pattern may be the best-case scenario for US equities. In the short-term 875 remains our main reference point for the S&P500.

■ India: Nifty – 5,000+. The 4,090-4,200 support zone has held and the market is starting to push higher again. Our minimum expectation for this advancing phase is for a retest of the recent peak at 4,696-4,700 with risk of extending towards our Elliot wave target zone of 5,500-5,700. We would buy ICICI Bank (ICICIBC IN – Rs724) on a break above Rs772.

■ Taiwan; Taiex targeting 7,100-7,700. We note that the daily chart of the Taiex (last – 6,667) shows a clear positive divergence. This tells us that the market is building underlying strength and projects a minimum upside target of 7,113. The Taiex’s heavyweight, TSMC (2330 TT – NT$55.10), has room for further gains and we like the set-up of Hung Poo Real Estate (2536 TT – NT$46.25) and AU Optronics (2409 TT – NT$34.05).

■ The recommended list: We would take profits in CNOOC (883 HK – HK$9.54) and Gazprom (GAZP RU - $5.22).

To see full report: PRICE ACTION