global stock markets outlook for 2016 part 4 melt up before potential correction 1791282015

Now we focus our attention to the rest of Asia ex Japan and emerging stock markets. Before we dive deeper, Part 1, Part 2 and Part 3 can be assessed by clicking on their respective links. As seen from the year to date performance chart till 30 December 2015 (excluding dividends), all major Asian ex Japan stock indices (except Shanghai Composite) are in the red and underperformed the U.S. S&P 500 as well as the EURO STOXX 50.

MSCI All Country Asia Ex Japan ETF

(Click to enlarge chart)

Key elements

• The iShares MSCI All Country Asia Ex Japan ETF (AAXJ) has underperformed the rest of the world (MSCI All Country Word ETF) as it plummeted by 31% to the “Black Monday”, 24 August 2015 low from its 69.94 high printed earlier in April 2015.
• Since the high of 65.71 seen on November 2015, the AAXJ has failed to make any significant breakout from and started to form a potential bearish “Double Top” distribution configuration with the neckline support at 44.28.
• The next key support lies at 42.06 which is defined by the swing low area of 29 June 2009 and a Fibonacci cluster (61.8% Fibonacci of the up move from November 2008 to April 2015 high + 1.236 Fibonacci projection of the down move from November 2010 high to 03 October 2011 low projection from April 2015 high).
• The weekly (long-term) RSI oscillator has started to inch up from its oversold level and shows room for further potential upside before reaching its extreme overbought level.
• Any potential push up in price action may be capped by the former trendline support from the swing low area of 03 October 2011 now turns pull-back resistance at 62.50.

Key levels (6 to 12 months)

Intermediate resistance: 62.50

Pivot (key resistance): 65.70

Support: 44.28/42.06 & 35.68

Strategic outlook (6 to 12 months) for iShares MSCI All Country Asia Ex Japan ETF

The AAXJ may see an initial push up to test the 62.50 intermediate resistance which is line with the initial expected upside movement (“melt-up”) for developed countries’ stock indices.

The key pivotal resistance will be at 65.70 for another potential down leg to target the long-term support zone of 44.28/42.06 with a maximum limit set at 35.68.

On the other hand, a clear break (weekly close) above the 65.70 pivotal resistance may invalidate the preferred corrective decline scenario for a potential upside movement to target the next resistance at 85.00/88.00.

MSCI Emerging Markets ETF

(Click to enlarge charts)

Key elements

• The iShares MSCI Emerging Markets ETF (EEM) has performed badly this year and also underperformed the rest of the world (MSCI All Country Word ETF). It did not make a new high in 2015 and plummeted by 31% from its 2015 high of 44.19 seen in April to the “Black Monday”, 24 August 2015 low of 30.00.
• Since the high of 55.83 printed on October 2007 before the severe correction that lead to the “Great Financial Crisis”, the EEM has been evolving in a multi-year “Symmetrical Triangle” range configuration.
• The push up from October 2011 low of 33.42 has been capped by the upper limit (resistance) of “Symmetrical Triangle” at 45.85 on September2014. Thereafter, it has staged a decline of 34% to the “Black Monday”, 24 August 2015 low of 30.00.
• The on-going bearish sentiment seen in the EEM is caused by a strong U.S. dollar, weaker crude oil price and the slow down seen in the economic growth of China which is the main source of exports for emerging markets.
• On July 2015, the EEM has staged a bearish breakout below its former trendline support that linked a series of higher lows since October 2011 now turns pull-back resistance at 38.40.
• The lower limit (support) of the “Symmetrical Triangle” stands at 28.80/26.50 which also confluences with a Fibonacci cluster (76.4% Fibonacci retracement of the up move from October 2008 low to May 2011 high + 1.00 Fibonacci projection of the down move from May 2011 high to October 2011 low projected from September 2014 high).

Key levels (6 to 12 months)

Intermediate resistance: 38.40

Pivot (key resistance): 44.90

Support: 28.80/26.50

Strategic outlook (6 to 12 months) for iShares MSCI Emerging Markets ETF (EEM)

Based on the current positive observation seen in the weekly RSI oscillator, the EEM may see a potential push up to test the intermediate resistance at 38.40 with a maximum limit set at the 44.90 long-term pivotal resistance.

Thereafter, it is likely for the EEM to resume its potential decline to target the lower limit (support) of its decade long “Symmetrical Triangle” range configuration at 28.80/26.50.

On the other hand, a clear break (weekly close) above the 44.90 pivotal resistance may invalidate the preferred corrective decline scenario for a potential upside movement to retest the October 2007 swing high at 55.83.

Source:  Charts are from eSignal

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