TURKEY, SOUTH AFRICA and BRAZIL

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It started with weakness in emerging market currencies (archive for emerging market currencies) then it spread to equity markets and now emerging market yields are under pressure. From commodity exporting economies to energy importers, almost all emerging markets experienced high volatility. Charts are telling us that the high volatility is here to stay and possibly spread to other investment areas. This update shows the technical damage on the 3 major emerging market economies; Brazil, South Africa and Turkey. By looking at these charts one would wonder how much more shocks can these markets absorb. It looks like the bond markets can experience some heat in the following months.

BRAZIL

MSCI BRAZIL

Sharp sell-off in Brazilian equities breaks down 2008 low levels. MSCI Brazil underperforms the MSCI Emerging Markets index.

MSCI BRAZIL vs MSCI EM

U.S. Dollar vs. Brazilian Real is now close to 4 levels. Since the breakout above 2.62 levels, depreciation in Brazilian Real has taken a parabolic shape. Breakout above 4 levels will push the cross rate to uncharted territory.

 USDBRL

10 year government bond yields completed 7 year-long base formation, suggesting a price target of 18 levels.

BRAZIL 10 YR YIELDS

BRAZIL GDP GROWTH RATE

Source: www.tradingeconomics.com

SOUTH AFRICA

MSCI SOUTH AFRICA

MSCI South Africa is now testing strong support at 445 levels. Breakdown below this level can push the index towards 350 levels.

MSCI SOUTH AFRICA vs MSCI EM

MSCI South Africa has outperformed the MSCI Emerging Markets index. This is positive on a relative basis.

USDZAR

U.S. Dollar vs. South African Rand is now challenging all-time high levels. Depreciation against the U.S. dollar resumes…

SOUTH AFRICA 10 YR GOVT BOND YIELDS

South Africa 10 year government bond yields are completing a massive 5 year-long base formation. Breakout above 8.9 levels can result in a similar move that we have seen on the Brazilian government bond yields.

SOUTH AFRICA GDP GROWTH RATE

Source: www.tradingeconomics.com

TURKEY

MSCI TURKEY

MSCI Turkey breaks down decade-long trend line support. Also the index breached the 5 year-long support at 400 levels.

MSCI TURKEY vs MSCI EM

If we take the relative performance of MSCI Turkey vs. MSCI Emerging Markets we can conclude that the index have been flat since 2004!

USDTRY

After completing its decade-long consolidation which took the form of a continuation head and shoulder U.S. Dollar/Turkish Lira broke out above 1.8 levels and since then the sharp depreciation pushed the Lira to historical high levels. Added to the emerging market weakness, political uncertainty and security issues put further pressure on Turkish economy and its financial markets.

TURKEY 2 YR GOVT BOND YIELDS

Turkish short-term yields are completing a massive 6 year-long base formation. Breakout above 11.8 levels can push the yields to 19 levels in the following months.

TURKEY GDP GROWTH RATE

Source: www.tradingeconomics.com

MALAYSIA KLSE COMP INDEX

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Weakness in emerging market equities can be seen across the board. From commodity exporting South American countries indices to China’s trading partners in emerging Asia, all show downtrends.

Head and shoulder top is a bearish chart pattern and usually forms after prolonged uptrends. It acts as a reversal chart pattern and successful completion could result in a multi-month downtrend. Malaysia’s KLSE Composite Index formed a 2 year-long head and shoulder top. Support remains at 1,670 levels. Decisive break (on a weekly closing basis) below 1,670 will complete the head and shoulder top and result in a downtrend towards 1,400-1,450 area.

MALAYSIA KLSE COMP INDEX

INDIA BSE SENSEX INDEX

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Uptrend in INDIA equities is running out of steam. Chart pattern suggests correction in the coming months if the index breaks down the 200-day exponential moving average at 27,300 levels. India BSE SENSEX index might be forming a head and shoulder top chart pattern with the neckline overlapping with the long-term average. Breakdown below a strong technical level like this could be the first warning signal of a deeper correction.

INDIA BSE SENSEX INDEX

Weekly price scale

INDIA BSE SENSEX INDEX II

Daily price scale

Similarly USD/INR formed an inverse head and shoulder chart pattern suggesting weak Rupee if the cross rate breaks above 63.70 levels. I’m still bullish on India in the long-term (you can find earlier analysis here at the time of long-term breakout). BSE SENSEX cleared long-term horizontal resistance at 21,200 levels in 2014. I’ll view the possible weakness as a pullback to the long-term support level.

USDINR

Some stocks that are showing weakness in the Index. Strong long-term trend lines are being challenged. Breakdown on these names can push the SENSEX lower.

BAJAJ AUTO

TATA MOTORS

ICICI BANK

WIPRO

BIST 100 (TURKEY) and INDUSTRIAL SECTOR

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Industrial sector outperformance is usually negative for Turkey’s BIST 100 index. Last  time I updated this chart was in January 2014. Since the last update It’s been more than a year and BIST 100 index trended higher from 60,000 levels to 91,000 levels. Strong upward trend might be reversing once again towards a corrective period in Turkish equities.

BIST 100 INDEX

XUINDXU100

Industrial Sector continues to outperform the BIST 100 index. 

Relative performance ratio between Industrial sector and BIST 100 index is breaking out of a long-term consolidation. Historically industrial sector’s outperformance didn’t bode well for the BIST 100 performance. Strong uptrends were usually led by financial sector outperformance.

Latest change can have significant medium/long-term implications. We can expect further correction/sideways trading in equities and continuation of industrial sector outperformance in the coming months.

PERU LIMA IGRA SE INDEX

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PERU LIMA IGRA INDEX

Peru LIMA IGRA index has one of the weakest chart set-ups in the emerging market equities. Multi-year head and shoulder top has a neckline standing at 14,150 levels. Index is trading at 13,493 levels – below the multi-year support. Decisive “weekly” close below 13,360 levels (minor low in January) will confirm the downtrend towards 10,000 levels. Strong medium/long-term resistance area remains between 14,150 and 15,000. Technical outlook is negative for Peru equities.

MSCI EMERGING MARKETS INDEX

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Strong trends usually emerge from low volatility periods. Low volatility reading on long-term charts is more significant. MSCI Emerging Markets index is getting closer to a strong directional movement after the band width reached multi-decade low level. Index is now in a tight range between 910 and 1,100 levels. Breakout in either direction will result in a strong move. Last two year’s choppy sideways trading is a sign of weakness. Though, I would wait for a decisive close above or below the mentioned levels.

MSCI EMERGING MARKETS INDEX

MALAYSIA KLSE COMPOSITE INDEX

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Malaysia KLSE Composite index formed a head and shoulder chart pattern. Head and shoulder top is a reversal chart pattern and it is bearish. Today the index slipped below the neckline at 1,770 level. Consecutive daily closes below the support at 1,770 level will confirm the breakdown and possibly push the index towards 1,650 levels in the following weeks. Negative view for the Malaysian equities is confirmed by the weakness in the local currency which breached 3.37 resistance over the past few days. Breakout from a year-long sideways consolidation range can result in further weakness towards 3.55 levels for the Malaysian ringgit.

MALAYSIA KLSE COMP INDEX

USDMYR

Financial sector performance has been weak and below are some of the names that experienced major breakdowns.

CIMB GROUP HOLDING HONG LEONG FINANCIAL GROUP

MAYBANK

TURKEY BIST100

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Turkish financial sector has been strong over the past few weeks. I don’t have the deep knowledge or the resources to understand the reasoning behind this. I would welcome any thought. But here, I’d like to share some chart evidence that supports further strength in the banking and financial sector stocks in the coming months. I’d also like to draw your attention to the latest bullish development on the Turkish government bond yields (which could have a positive impact on the financial sector).

TURKEY 2YR YIELDS

In September yields were targeting 11.8 levels. That direction would have been disastrous for the Turkish economy. In October we have seen a “V” reversal changing the whole picture to a more bullish one. 2 YR government bond yields can now target 5-6 area in the coming months.

XUIND XU100 II

Industrials vs. BIST 100 is a chart that I keep track of since 2003. When industrial sector outperforms it usually signals underperformance for the financial sector and this coincides with market corrections. XU IND/ XU 100 ratio is now reversing from a multi-year resistance suggesting financial sector outperformance and industrial underperformance.

Long-term chart patters are usually very powerful. When I see major chart patterns developing on long-term scale I pay close attention. Below are some of the financial sector stocks that has formed bullish chart patterns. Latest chart patterns or consolidations can be compared with 2010-2012 periods. I think they are similar.

HALKB

HALKBANK is forming a year-long inverse head and shoulder. Neckline stands at 16.80 levels

KCHOL

KOC HOLDING breaks out to all-time high levels. This is a bullish development.

SAHOL

SABANCI HOLDING formed a year-long inverse head and shoulder. Breakout above 10.60 will be very bullish.

VAKBN

VAKIFLAR BANK formed a year-long inverse head and shoulder with bullish implications. Breakout above 5.30 will be very positive for the stock.

YKBNK

Another inverse head and shoulder chart pattern can be seen on YAPI KREDI BANK.

RUSSIA MICEX INDEX

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RUSSIA MICEX INDEX

One would think after sanctions and geopolitical tension Russian equities would experience sharp corrections or at least minor pullback. Chart suggests the opposite. Russian equities are gaining strength and MICEX index is now challenging year-long resistance at 1,530 levels. MICEX Index is cap-weighted composite index calculated based on prices of the 50 most liquid Russian stocks of the largest and dynamically developing Russian issuers presented on the Moscow Exchange. MICEX Index was launched on September 22, 1997 at base value 100. The MICEX Index is calculated in real-time and denominated by Moscow Exchange in Russian rubles. Breakout above 1,530 levels will clear the trend channel and horizontal resistance. Such price action will be positive in the medium/long-term.

NOVATEK

And NOVATEK – an energy company with $27 billion market cap is trying to breakout from a 3 year-long sideways consolidation to all-time high levels… Both charts are extremely constructive.

TAIWAN WEIGHTED INDEX

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Taiwan still needs to prove itself. However, sooner or later breakout from this long-term chart pattern will present tremendous opportunity. 24 year-long sideways consolidation might be close to completion. Breakout should be powerful and preferably once confirmed this market shouldn’t look back. There are two more resistance levels that I will be following and these are 9,700 and 10,350 levels. Taiwan is an emerging market that must be on your watch list.

TAIWAN WEIGHTED INDEX