After over two years of consolidating, the broad-based Dow Jones Asia/Pacific Index appears set to break this pattern and trend lower.
The index, which covers a large number of Asia and Asia/Pacific countries and select regions, has formed a reversal Head-and-Shoulders formation. This has been developing since early 2010. The pattern is not complete until the index breaks below the 110 support line. This is anticipated to occur by Q3.

Models indicate that once the 110 level is broken, the minimum downside target is 75-80 which is a return to early 2009 levels.

The significance of this formation is due to its predictability. Head-and-Shoulders patterns have a 75% probability of completion.

Bottom line: There is a strong probability that the DJ Asia/Pacific Index will fall below the key support level of 110 over the summer. Once through the line, the expectation is for another 20%-25% correction.

Investment approach: The uncertainties with financial events in Europe are causing world markets to trend lower. Investors may wish to reduce their exposure to Asian markets and take a more defensive stance. Global stock markets, in general, are displaying similar patterns. This negative movement will likely continue into 2013.

More information about current market conditions will be in the upcoming June newsletter.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2012 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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