Price Action

Asian technical research

ASIA

Laurence Balanco, CMT A look at regional and global technical trends

Laurence.balanco@clsa.com Gold: Set for new all-time highs
(61) 285714253
 A break above the 8 November 2011 peak of $1,802.93 would put gold
Tiara Fontanilla back into a confirmed uptrend and open the way for a run at the all-time
(63) 28604011
high at $1,921.15 and most likely new highs.
 Another interesting observation is gold’s move in other currency terms. In
Euro and Yen terms gold broke above short-term downtrend resistance
drawn from the 2011 peak in January. So far in February we have seen
Gold break above downtrend resistance in Swiss Franc and Canadian
dollar terms with Gold in Australian dollar terms on the cusp of
27 February 2012 breaking out. This price action suggests that gold’s current rally is a
genuine one.
Asia Hi-Ho Silver away
Technical analysis  Silver is on the cusp of breaking out of a double bottom basing pattern
and downtrend resistance drawn from the April 2011 peak. A break above
$35.36 would trigger the bullish implication of the double bottom pattern
which supports a minimum upside target around $48, just below the April
2011 peak. In Elliott wave terms we can project a potential ultimate
upside target of $60. Buy a break above $35.36.
Australia: Looking under the hood
 Year to date performance sees the MSCI Australia (in US dollar terms)
close to the bottom of the performance table of the MSCI Asia Pacific ex
Japan constituents. However with the ASX200 testing the 4,315-4,417
resistance zone, hope is building for a sustained advance back to the April
2011 highs and beyond.
 The most compelling price action is seen in the ASX200 Industrial
sector with the absolute index breaking out of a more than two-year-old
downtrend channel. Three stock standout from a technical perspective;
Leighton Holdings (LEI AU) SEEK LTD (SEK AU) and Toll Holdings
(TOL AU).
 Another noticeable sector displaying an improving technical profile is the
ASX200 Consumer Discretionary sector. David Jones (DJS AU) and
Harvey Norman (HVN AU) are presented as potential base breakout
candidates.
Silver: Set to breakout

All charts priced as at

24 February

Sources for all charts:

Bloomberg, Updata,
CLSA Asia-Pacific Markets

www.clsa.com

Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor® proprietary database at clsa.com

Prepared for: ThomsonReuters

 Price Action
ASIA

Gold: Set for new all-time highs

Gold’s rebound off long-
term trend support is now
back above the 50-day MA
We were expecting a deeper correction in gold early this year back towards the
$1,400-1,450 area before the long-term bull trend resumes. The precious metal
got as low as $1,530 on 29 December 2011, a retest of long-term trendline
support drawn off the October 2008 lows, before staging a recovery rally. This
rally has now taken price action back above the 50-day MA as well as short-term
downtrend resistance drawn off the September 2011 high of $1,921.15. A break
above the 8 November 2011 peak of $1,802.93 would put gold back into a
confirmed uptrend and open the way for a run at the all-time high at $1,921.15
and most likely new highs.

Gold: Set for a run at the all-time high

A break above the 8

November 2011 peak of
$1,802.93 would put gold
back into a confirmed
uptrend

The choppy down-up-down (a-b-c) corrective structure supports our view that
We continue to recommend
gold’s primary uptrend remains intact. As such we continue to recommend
accumulating gold during
accumulating gold during corrections back towards the 200-day MA.
corrections back towards
the 200-day MA The down-up-down corrective phase marks a 4th wave correction of the five wave
advance that has been unfolding from January 2007 low. A move back above the
8 November 2011 peak of $1,802.93 would most likely confirm that wave 5 is
unfolding from the December 2011 low. Wave 5’s typically related to a Fibonacci
ratio of 0.62x or 1x the size of wave 1. In this case we have two potential upside
targets for the move off the December 2011 low of:

Wave 5 typically equals
0.62x or 1x wave 1. In this
case we have an upside
target zone between $2,142
and $2,648
 $2,142 – where the advance off the December 2011 lows is approximately
equal to 0.62x wave 1 in percentage terms (January 2007 – March 2008
advance.
 $2,648 – where the advance off the December 2011 lows is approximately
equal to wave 1 in percentage terms (January 2007 – March 2008
advance.

If the wave structure and accompanying technical measures are compatible with a
high when Gold reaches either of these areas, we’ll discuss the potential for an
end to wave 5. If they are not compatible, then there will remain greater bullish
potential as we are well aware that commodity bull markets have a history of
ending with spectacular spikes.

27 February 2012 page 2

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 Price Action
ASIA

Gold: Set for a run at the all-time high

Wave 5 targets are seen

between $2,142 and
$2,648

Another fascinating observation is gold’s move in other currency terms. In Euro

Gold breaking above short-
and Yen terms gold broke above short-term downtrend resistance drawn from the
term downtrend resistance
2011 peak in January. So far in February we have seen Gold break above
drawn from the 2011 peak downtrend resistance in Swiss Franc and Canadian dollar terms with Gold in
in multi-currency terms Australian dollar terms on the cusp of breaking out. This commonality for gold in
multi-currency terms suggests that the current rally is a genuine one which sets
the precious metal up for a move to all-time highs.

Gold in multi-currency terms: Supportive of further gains

Gold in Euro terms

Gold in Yen terms

Gold in Franc terms

Gold inC$ terms

Gold in A$ terms

27 February 2012 page 3

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Gold/Silver ratio starting to
roll-over
Prefer to be long silver over
gold in the coming weeks
A break above $35.36 would
trigger a bullish double
bottom pattern
BUY Silver on a break above
$35.36
27 February 2012
Price Action
ASIA
Interestingly, relative to Silver gold has started to roll-over after outperforming
Silver by some 76% since April 2011. The relative ratio, after tagging downtrend
resistance drawn off the September 2008 peak, has now dropped back below the
50-day MA and trendline support drawn off the April 2011 low. We suspect that
this ratio is in the early stages of the resumption of the long-term downtrend.
We’re looking for a return to the 41.55-44.59 area (50-62% retracement level of
the 2011 advance) over the next six to eight weeks. As such we’d prefer to be
long Silver over Gold in the coming weeks.
Gold vs Silver: Rolling over
Zooming down to the spot Silver daily chart we note that price action is on the
cusp of breaking out of a double bottom basing pattern and downtrend resistance
drawn from the April 2011 peak. A break above $35.36 would trigger the bullish
implication of the double bottom pattern which supports a minimum upside target
around $48, just below the April 2011 peak. In Elliott wave terms we can project
a potential ultimate upside target of $60 where the advance of the December
2011 low would match the October 2008 – December 2009 advance. Buy a break
above $35.36.
Silver on the cusp of a major breakout
page 4
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 Price Action
ASIA

Australia: Looking under the hood

Year to date performance sees the MSCI Australia (in US dollar terms) close to the
bottom of the performance table of the MSCI Asia Pacific ex Japan constituents.

MSCI Asia Pacific ex-Japan country relative performance

20.00 Year-to-date relative performance (US dollar terms)

15.00

10.00
Year-to-date Indonesia,
Malaysia, New Zealand 5.00
and Australia have
underperformed the MSCI -

Asia Pacific ex Japan

index -5.00

-10.00

-15.00
MSCI New Zealand USD
MSCI Malaysia USD

MSCI Australia USD

MSCI Emerging Markets Philippi

MSCI Hong Kong USD

MSCI China USD

MSCI India USD

MSCI Emerging Markets Taiwan U
MSCI Emerging Markets Indonesi

MSCI Emerging Markets Korea US

MSCI Singapore USD

MSCI Emerging Markets Thailand

ASX200 approaching 4,315-
4,417 overhead resistance
However, with this week’s rally the ASX200 is approaching its trading range highs
(between 4,315 and 4,417) that have been in place since mid-August 2011 has
investors holding out for a sustained advance back to the April 2011 highs and
beyond. But, it must be recognized that at least three previous rally attempts
since August 2011 that have failed in this approximate price range, this is the
fourth attempt. Whether this rally persists or fails will be largely determined by
the performance of the two heavyweight sectors in Financials and Materials which
account for roughly 64% of the ASX200.

ASX200 testing overhead resistance again

27 February 2012 page 5

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Analysing the price action of the ASX 200 Financial index in absolute terms and
In absolute and relative relative terms (versus ASX200) we note that the absolute chart has been drifting
terms the ASX200 Financial
across the well-defined downtrend channel which has developed off the April 2010
peak of 5,047. It would take a break above the October 2011 peak of 4,266 to
index remains in a clear
improve the outlook for the sector. The relative chart displays a similar picture,
downtrend
one dominated by a clear downtrend channel, but here it’s worth noting that the
relative price action has started to roll-over again dictating an underweight
stance.

ASX200 Financials, relative to ASX200 and 13wk relative momentum

Onto the Materials sector we see a similarly weak profile with price action in a
The materials sector looks set
clear downtrend from the April 2011 high. The recent failure at resistance
provided by the 40-week MA and the October 2011 high reinforces this bearish
to retest the Sep/Dec 2011
trend and warns of a potential retest of the 10,400 support zone. A break below
lows
this level would open the door for further weakness towards next support at the
8,902-9,252 area. In relative terms the index has backed off double top
resistance and is in a clear downtrend

ASX200 Materials, relative to ASX200 and 13wk relative

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It’s worth noting that a number of base metals reflect a similar bearish profile. As
well as Iron ore.
Commodities downtrend

LME Nickel LME Aluminium

LME Zinc

China import Iron Ore

fines 62%

27 February 2012 page 7

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Focusing in on Copper (HG1-381.80c) we note that the metal has made an

impressive 62% retracement of the 34% decline that took place last year, and is
Copper at best looks range
currently addressing resistance provided by the declining 40-week MA as well as
price resistance in the 380-400c range. Looking back at the price history, one
bound between 380-400 and
might suggest a wide trading range environment such as took place for most of
300-320c
2006, and 2007 into 2008. A similar anticipated range currently could be defined
between 380-400 resistance and 300-320c support. As such, we would
recommend trading the range – selling above 380c and buying below 320c. Any
penetration of either should guide the next major trending direction for copper.

Copper ranger (weekly chart)

It’s worth noting that the two heavyweight stocks in the sector, namely BHP
Billiton (BHP AU – last $36.35) and Rio Tinto (RIO AU 0 $67.92) are also
trapped in a trading range. BHP has recent rolled over below resistance provided
by the upper boundary of its range at $39/40 and looks set to test support at
$33/34. While Rio has failed below $70/71 resistance and is working its way lower
towards next chart support at $58/59.
Big-cap miners

BHP Billiton (BHP AU)

Rio Tinto (RIO AU)

27 February 2012 page 8

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Trading sell on PanAust
ASX200 industrials breakout
of a more than two-year-old
downtrend
27 February 2012
Price Action
ASIA
PanAust (PNA AU) looks like a trading sell as the stock has formed a bearish
price/momentum divergence with its daily RSI indicator failing to confirm the 10
Feb high of $3.84. This sign of non-confirmation warns that the uptrend is mature
and vulnerable to a correction. A break below short-term support at $3.41 would
add further technical evidence that the trend has turned from up to down. Such a
move would most likely lead to a test of next chart support at $2.90-3.00.
PanAust downside risk
With the two major ASX200 sectors looking benign we have to dig a little deeper
to find some positive relative and absolute price action. The most compelling price
action is seen in the ASX200 Industrial sector with the absolute index breaking
out of a more than two-year-old downtrend channel. Next chart resistance is at
3,875 and the 4,158. The other impressive technical feature is the relative’s
charts breakout from a more than two-year-old trading range. This trading range
can support an upside target of 0.96, another 10% outperformance.
ASX200 Industrial, relative to ASX200 and 13wk relative
page 9
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ASIA

Leighton’s breakout from a
six-month-old basing pattern
supports an upside target of
$30-32.
Three stock standout from a technical perspective; Leighton Holdings (LEI AU)
SEEK LTD (SEK AU) and Toll Holdings (TOL AU). Leighton’s recent move above
$22.65-23.30 in early February completed a six-month-old base formation. The
next objective for the stock is to close the gap created on 14 April at $28.18.
Additionally it’s worth noting that the six month old basing pattern supports an
upside target zone of $30.73-32.54, the amplitude of the basing pattern projected
higher from the breakout zone.

Leighton Holdings: Base breakout

SEEK’s recent breakout SEEK is another buy candidate as the stock has just broken out of a more than
targets $8.30 five-month-old basing pattern. This breakout supports an ultimate upside target
of $8.20.

SEEK: Surging

27 February 2012 page 10

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ASIA

Toll heading to $7.00

The daily chart of Toll Holdings highlights price action breaking out of a more than
two year downtrend channel and a five-month-old basing pattern. This basing
pattern supports an upside target of $6.90-7.00.

Toll Holdings: Turning the corner

Another noticeable sector displaying an improving technical profile is the

The consumer discretionary consumer discretionary sector. As the weekly chart below shows the sector has
sector is on the cusp of broken back above its 40-week MA and downtrend resistance drawn from the
breakout out of a basing April 2011 highs. The index now sits on the cusp of breaking above its October
pattern 2011 highs. Such a move would project an upside target of 1,522. In relative
terms the sector has broken above downtrend resistance and its November 2011
peak.

ASX200 Industrial, relative to ASX200 and 13wk relative

27 February 2012 page 11

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David Jones stabilising below
$2.71 resistance
A break above $2.32 would
trigger an important basing
pattern for Harvey Norman
27 February 2012
Price Action
ASIA
David Jones (DJS AU) finds itself in a similar position with the stock sitting just
below resistance provided by the upper boundary of it basing pattern at $2.71. A
break above this cited resistance zone would open the door for a test of next
resistance at the $3.57 area, the October 2011 peak. Another technical feature
worth noting is the bullish price momentum divergence which formed at the
January lows. This sign of non-confirmation between price and the daily
momentum indicator suggests that the downtrend is mature and vulnerable to a
correction.
David Jones: Signs of stability
Harvey Norman (HVN AU) has finally found some support at the 2009 lows
around $1.77-1.80. However, to confirm that an important low is in place the
stock would need to break above $2.32 resistance. Such a move would trigger the
bullish implication of the double bottom pattern which would support an upside
target of $3.05
David Jones: Signs of stability
page 12
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 Price Action
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Key to CLSA investment rankings: BUY: Total return expected to exceed market return AND provide 20% or greater absolute return; O-PF: Total return
expected to be greater than market return but less than 20% absolute return; U-PF: Total return expected to be less than market return but expected to
provide a positive absolute return; SELL: Total return expected to be less than market return AND to provide a negative absolute return. For relative
performance, we benchmark the 12-month total return (including dividends) for the stock against the 12-month forecast return (including dividends) for the
local market where the stock is traded.
CLSA changed the methodology by which it derives its investment rankings on 1 January 2012. The stocks covered in this report are subject to the
revised methodology. We have made no changes to the methodologies through which analysts derive price targets - our views on intrinsic values
and appropriate price targets are unchanged by this revised methodology. For further details of our new investment ranking methodology, please
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©2012 CLSA Asia-Pacific Markets (“CLSA”). Note: In the interests of timeliness, this document has not been edited.
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27 February 2012 page 13

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