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CHART ANALYSIS


AAXJ Forming Top Double?

04/15/10 10:19:49 AM
by Chaitali Mohile

The robust rally of AAXJ has reached its previous high resistance. Will the stock breach resistance or form a double top?

Security:   AAXJ
Position:   Buy

The iShares MSCI All Country Asia ex Japan Index Fund (AAXJ) seeks investment results that generally correspond to prices and yield performance, before fees and expenses, of the MSCI All Country Asia ex Japan Index. Some of the top holdings of AAXJ are Samsung Electronic GRP, Taiwan Semiconductors SP ADR, Shinhan Financial GRP, HDFC Bank ADR, and Reliance INDS GRP. Let's look at the AAXJ charts to understand the technical aspects of the fund.

AAXJ witnessed an exclusive bullish rally and regained its strength. The fund has surged almost 50% from its lows. The upward movement began in March 2009 and has steadily gathered bullish strength throughout the move. Although the average directional movement index (ADX) (14) has plunged from a developed uptrend to a weak trend level below 15, the buying pressure was consistent enough to drag AAXJ higher. In Figure 1 we cannot see any corrective rally except the one in early 2010. However, the fund stabilized seven points lower from the new high at 57 levels and resumed the prior bullish rally. As such, undergoing a minor correction does not change the direction of the main rally but it enhances the strength.

AAXJ also witnessed the same strength. We can see in the box in Figure 1 that the fund has gradually moved back to its previous high. The volume rose along with the price. Compared to the fast falling bearish candles (red), the recovery was sluggish (note the size of the candles).

FIGURE 1: AAXJ, WEEKLY. The fund is likely to proceed slowly above the previous high at 57 levels.
Graphic provided by: StockCharts.com.
 
The negative moving average convergence/divergence (MACD) (12,26,9) is likely to turn bullish, and the positive directional index (+DI) is indicating marginal increase in the buying pressure. Therefore, AAXJ is likely to crawl above the prior high pivot at 57 levels.

The daily time frame in Figure 2 shows robust resistance at 57 levels. The support-resistance tool line is used to identity the perfect zones. In November-December 2009, AAXJ turned very volatile at 57 levels and was reluctant to breach. The price action was crunched between the resistance and 50-day moving average (MA) support. Finally, in January 2010, the fund broke upward and tried to sustain the newly formed support (the red line turned green as resistance was converted to support). Later, the fund plunged toward the 200-day MA support and initiated a relief rally. Meanwhile, the MACD (12,26,9) showed a bullish crossover in negative territory and began its upward journey above the zero line. Fresh momentum developed in the rally, however, even as the ADX (14) weakened. Eventually, AAXJ grabbed the momentum and broke the 50-day MA resistance.

FIGURE 2: AAXJ, DAILY. Currently, the ADX (14) at 20 levels is suggesting the developing uptrend. Therefore, AAXJ is likely to sustain at the newly formed support at 57.
Graphic provided by: StockCharts.com.
 
Recently, the resistance at 57 has been turned to support and the fund has established robust support. AAXJ has sustained at the new support for more than a week. Generally, the stock/index retraces back to challenge the newly formed support-resistance, but AAXJ did not show any signs of weakness. The buying pressure on the weak trend proved stronger than the selling pressure, resulting in price stability at new support. The gap up of April 14 confirmed the bullish hold and ruled out the risk of a double-top bearish reversal formation. Therefore, the fund is likely to continue its bullish journey without any bearish reversal rally. Henceforth, every high would be a new high for AAXJ. A fresh uptrend would bestow additional confidence among the traders and develop sentiments. Therefore, those top holding companies of AAXJ would also undergo the bullish session ahead. Traders can keep an eye on these stocks along with AAXJ.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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