Turkey Starts To Crack

01/11/07 01:23:05 PM

by Arthur Hill

The Turkish ISE National XU100 Index is underperforming many world markets, and an early January breakdown points to lower prices ahead.

Security: $XU100
Position: Sell

Figure 1 covers the index over the last four years. The XU100 advanced through 2003, 2004, and 2005. Turkish stocks remained strong into early 2006, but peaked in March and declined sharply into June. This decline broke the trendline extending up from March 2003 and dealt a serious blow to the long-term uptrend.

FIGURE 1: ISE NATIONAL XU100 INDEX. The index went through 2003–05 strong, but peaked in March 2006 and declined into June.

Graphic provided by: MetaStock.

The index managed to recover in the second half of 2006, but this recovery is coming up short of the prior high. By comparison, the Dow Jones Industrial Average (DJIA) moved to a new all-time high in December 2006 and Turkish stocks are now lagging US stocks. Relative weakness and the lower high around 40,000 are negative.

Figure 2 shows a rising wedge and break down over the few months. The June–October advance retraced 50–62% of the prior decline and formed a rising wedge. Both the retracement and the pattern are typical for corrective rallies. The index met resistance at 40000 twice and broke below its early December low this past week. The lower low shows an increase in selling pressure and this signals a continuation of the March–June decline. The first target is the July low around 31500. It would take a move above 41000 to reverse this signal and turn bullish again.

FIGURE 2: ISE NATIONAL XU100 INDEX. The rising wedge shown here breaks down over the next few months.

Graphic provided by: MetaStock.

Momentum confirms the recent breakdown. The 5/35 price oscillator advanced from July to October and then stalled. The indicator had just made it back into positive territory and was already losing steam. With the break below 37000 in the index, the price oscillator broke back into negative territory, and momentum is bearish again.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Turkey Starts To Crack

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