Asian Stocks’ Rally May Be Sustainable After Break Out: Technical Analysis

Asian stocks may extend their longest rally in more than a year after regional indexes broke out of so-called triangle congestion patterns, according to Chart Partners Group Ltd.

The MSCI Asia Pacific Index surged 8 percent last month, its best such performance since September 2010 and the first time the gauge recorded consecutive monthly advances since October 2010. India’s BSE Sensitive Index and Hong Kong’s Hang Seng Index posted the biggest advances, each rising 11 percent.

“Many Asian indexes have broken to the upside of triangle congestion patterns,” Thomas Schroeder, managing director at Bangkok-based technical research company Chart Partners, said in a telephone interview. “It started in Hong Kong and we’ve seen similar breakouts in Japan and Korea. These are signs that this rally is sustainable.”

The Hang Seng Index broke above the triangle pattern on Jan. 17, Bloomberg data showed. South Korea’s Kospi Index, which has risen 7.3 percent this year, traded above the same pattern on Jan. 20, while Japan’s Nikkei 225 Stock Average breached the formation on Jan. 25.

The rally across Asia may last through March, especially if China’s Shanghai Composite Index (SHCOMP) can build on recent gains, Schroeder said. The Chinese benchmark index advanced 4.2 percent in January, snapping a two-month slump.

“We’ll find more buying opportunity should shares weaken in February,” said Schroeder. “If the Shanghai Composite Index extends its gains above 2,320, that will add more fuel to the rally. The Chinese benchmark index could rise to between 2,500 and 2,600.”

In technical analysis, investors and analysts study charts of trading patterns and prices to try and predict changes in a security, commodity, currency or index. A triangle is formed when upper and lower trend lines intersect.