Chris Roberts

chris.roberts@hk.mizuho-sc.com +852 2685 2412

23 February 2012

India: Bear outsourced

Nifty daily: Bullish behaviour

6,339 Nov 10

(+24%) 5,630

Dec 11 4,531 (-29%)

Source: Mizuho research, Updata Professional, Bloomberg

Open Position
If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong. Bernard Baruch

The bottom line: The Niftys (5,505) one-quarter surge from the 2011 low signals the end of the bear market and most likely the resumption of the secular bull market that started in 2001. The Nifty has clearly and convincingly broken above the multi-touch downtrend line. The 14-day RSI has been in the overbought zone for most of the past month (this just does not happen in a bear market). Our roadmap views the advance from the December 2011 as wave of iii three of threes are normally powerful, consistent moves we project an advance to 10,000. Wed expect setbacks to find support in the 5,2005,400 support area, and around the area of the 40-day WMA. The maximum extent of a correction should be the area of the rising 200-day WMA (last at 5,073).

also this week

Asia: Running with the Bulls. More of our indicators are giving buy signals for the MXASJ (532). We look at resistance levels for some of the regions key indices. Trade Recommendations: BUY HDFC Bank (HDCFB IS INR531.45), Tata Consultancy (TCS IS INR1,252) and Weichai Power (2338 HK HKD45.70) details inside. Last Picture Show. US equities: NDX and SPX. The Nasdaq 100s (2,580) next resistance zone extends from 2,8003,000. The S&P500 (1,358) will be capped at approximately 1,5001,600.
The next edition of Madness of Crowds will be issued 22 March 2012

SALES
Hong Kong Alan Chen alan.chen@hk.mizuho-sc.com +852 2685 2268 Singapore Wong Look Liew lookliew.wong@sg.mizuho-sc.com +65 6603 5868 Adeline Ma adeline.ma@hk.mizuho-sc.com +852 2685 2060 London Richard Hoskin richard.hoskin@uk.mizuho-sc.com +44 20 7090 6122 Hong Kong David Harris Kevin Pereira KK Wong Angelo Iannone Paul Kim paul.kim@hk.mizuho-sc.com +852 2685 2058 New York John Bai john.bai@us.mizuho-sc.com +1 212 209 9354 david.harris@hk.mizuho-sc.com kevin.pereira@hk.mizuho-sc.com kk.wong@hk.mizuho-sc.com angelo.iannone@us.mizuho-sc.com Ivy Kim ivy.kim@hk.mizuho-sc.com +852 2685 2062 New York Dan Shin dan.shin@us.mizuho-sc.com +1 212 205 7619 +852 2685 2237 +852 2685 2288 +852 2685 2055 +1 212 209 9367

SALES TRADING

New York

Please refer to pages 15 16 of this report for important disclosure and analyst certification information.

Technical Research | chris.roberts@hk.mizuho-sc.com

India: Bear outsourced

The Niftys (5,505) one-quarter surge from the December 2011 low of 4,531 signals the end of the 20102011 bear market and most likely the resumption of the secular bull market that started in 2001.
Fig 1 Nifty daily: Bullish behaviour

6,339 Nov 10

(+24%) 5,630

Dec 11 4,531 (-29%)

Bull market behaviour Overbought

Oversold

Positive divergence

Positive divergence

Source: Mizuho research, Updata Professional, Bloomberg

The 13-month decline from the 2010 peak of 6,339 saw the Nifty fall almost 30%. The price action since the December 2011 low of 4,531 has been powerful and orderly, taking the index above the 40- and 200-day weighted moving averages (WMA), both of which are now advancing. The Nifty has clearly and convincingly broken above the multi-touch downtrend line. The featured indicators also support the case for a change in trend. The 14-day RSI has been in the overbought zone for most of the past month (this just does not happen in a bear market), and the MACDSell version is at the highest level for more than two years and is well above the zero line (normally bullish). It is also worth noting the positive divergences that formed at the December 2011 low on both of the indicators.

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 2 Nifty weekly: Shallow retracement

6,357 Jan 08
3/ 1 1/ 2 2/ 4/

6,339 Nov 10
3 5/ 4

1/3 retracement

(+24%) 5,630

4,531 Dec 11 (-29%)

Nov 08 2,253 (-65%) ii

Overbought

Trendline broken

Oversold

Positive divergence

Source: Mizuho research, Updata Professional, Bloomberg

The decline from the 2010 peak has always been viewed as a partial retracement (a wave two) of the 20082010 bull market. The 20102011 decline retraced exactly one-third of the bull market on a log-scale basis, this is shallow for a wave two correction which normally retraces between 5071% of the prior advance. However, in points terms some 44% of the 2,2536,339 move was retraced and in terms of duration, the 13-month decline was more than half of the length of the 24-month advance. There are two ways to view the shallow correction: 1. Only part of wave has completed and following the current advance another decline will result in a more normal retracement of the 20082010 bull market.

Or 2. The shallow correction reflects a strong underlying market that will now surge to new alltime highs as the secular bull market that started in 2001 resumes.

We are voting for option two because such an interpretation fits in well with our view that the next stage of the secular bull market should be very powerful.

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 3 Nifty monthly: To 10,000

i Dec 07 6,139

iii To 6,135

Mar 92 1,262

2,755

4,624

Nov 08 ii 914 Sep 01 End of a 9.5 years secular bear market

Sep 93

Feb 96

Jan 99

Nov 01

Apr 09

-20.1

Source: Mizuho research, Updata Professional, Bloomberg

Our Nifty roadmap views the advance from the December 2011 low of 4,624 (monthly close basis) as wave of iii three of threes are normally powerful, consistent moves that mark a significant point of trend recognition. On the scale we feature, our projected advance to 10,000 would not be unreasonable. We have also featured Sedge Coppocks indicator, the Coppock Guide, which he used to identify the start of bull markets. When the indicator (a 10-month WMA of a 14-month rate of change ROC + 11-month ROC) turns up from below zero, a new bull market is signalled. This month is very unlikely to see a Coppock Guide buy signal because at current index levels the indicator is still setting new lows.
Fig 4 Coppock Guide returns for the Nifty Index Signal date Sep 93 Feb 96 Jan 99 Nov 01 Apr 09
Source: Mizuho research

Index level 827 993 996 1,067 3,474

+3 months 26.1% 9.8% -1.8% 7.0% 33.5%

+6 months 42.3% 3.6% 31.5% -3.6% 35.6%

+9 months 51.1% -16.4% 33.1% -5.3% 40.5%

+12 months 56.0% -2.0% 55.2% -1.6% 51.9%

Looking at previous signals, a new Coppock Guide buy signal would be likely to take the index to a new monthly closing high. Of the 5 previous signals since 1993, 80% have had positive returns after both 3 and 6 months. The returns after 12 months are also interesting. Although only 3 of the 5 signals were still profitable at that stage, the average profit was 54.4% versus an average loss of just -1.8%.

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 5 Nifty daily: Wheres support?

200-day WMA

5,740 Jul 11
40-day WMA 5,2005,400 support

(+24%) 5,630

Dec 11 4,531

Very overbought

Overbought

Oversold

Source: Mizuho research, Updata Professional, Bloomberg

The next chart resistance is at last Julys 5,740 high. Although we cant tell where this advance will falter, we doubt that the Nifty can sustain a move above 6,000 without some consolidation. And with the 14-day RSI coming off a very overbought 80, and the Nifty up almost 25% in just two months, we have to be concerned about a correction; the steep angle of ascent is unsustainable. Wed expect setbacks to find support in the 5,2005,400 support area, and around the area of the 40-day WMA. The maximum extent of a correction should be the area of the rising 200-day WMA (last at 5,073). This week we recommend buying HDFC Bank (HDFCIB IS INR531) and Tata Consultancy (TCS IS INR1,252), two stocks that have set new all-time highs this week a powerful message so early in the bull market cycle (see Trade Recommendations on pages 1112 for details).

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Asia: Running with the Bulls

More of our indicators are giving buy signals for the MXASJ (532), increasing the odds that the advance from the 2011 low is the beginning of a new cyclical bull market and not a bear market rally.

Fig 6 MSCI Asia Free ex-Japan: New 52-week highs and Buy Thrust New 52-week highs Buy thrust

+ + + + + +

+ + + +

++

6.2

22.7

Buy signals: When the % of new highs shrinks below 3% then rises above 5%, and the index is above its 40-week WMA. Source: Mizuho research, Updata Professional, Bloomberg

Buy signals: When the % of overbought stocks shrinks below 5% and then moves back above 10% and the index is above its 40-week WMA.

Both the indicators featured above gave buy signals as at the close of business Friday, 10 February. The New 52-week highs indicator gives a buy signal when the percentage of new 52-week highs in the MXASJ (on a 4-week simple moving average basis) shrinks below 3% and then rises above 5%. The MXASJ also has to be above its 40-week WMA. The Buy Thrust gives a buy signal when the percentage of overbought stocks in the MXASJ (9-week RSI above 70) shrinks below 5% and then rises above 10%. The MXASJ also has to be above its 40-week WMA. It is worth noting that both indicators are well below levels where we would consider them overbought (see the guidance lines on the charts above).

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 7 MXASJ: Wave 3 to new highs underway

689 Nov 07
577 3/ 425 May 10 4/ 2/

1 5/

B 599 Apr 11

1/

440 416
Oct 11 C 2

Oct 08 224

Early stages of wave 3

Overbought

Break of 14-month trendline

Oversold

Source: Mizuho research, Updata Professional, Bloomberg

Our preferred view is that the MXASJ has resumed its secular bull market and is on its way to a new all-time high above 2007s 689 peak. The weekly chart shows our preferred wave count; the 2011 decline was a wave 2 correction that partially retraced the 20082011 (wave 1) advance. The wave 3 underway from Octobers 416 low should eventually take the index up to the 1,500 area. The 40-week WMA has started to climb supporting the idea of a bull market, also note the 14-week RSIs break above a 14-month downtrend line. Further encouragement would be taken from the MACDSell version moving back above the zero line.

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 8 MXASJ daily: 550 pivotal level and potential resistance

Apr 11 599

582

550 pivotal level

40-day WMA 200-day WMA

500 pivotal level

517 1st support Oct 11 416

440 Dec 11

Overbought

Constantly overbought, bull market behaviour

Oversold

Constantly oversold, bear market behaviour

Source: Mizuho research, Updata Professional, Bloomberg

The steep, persistent advance is forcing investors to participate in the uptrend, but when and where will this steep move exhaust itself and a partial correction of the gains from Decembers 440 low start. There are a number of targets clustered just below the area of the 2011 top: 550 a pivotal level (resistance during advances and support during declines) during 20102011 550 a 25% (one-quarter) advance from the December 2011 low of 440 555 a 33% (one-third) advance from the October 2011 bear market low of 416 The targets are some 34% above current levels, if exceeded a move to the 560580 zone could occur before the index takes a rest. The maximum extent of any correction should be the area of the rising 200-day WMA (last at 489). The first chart support is at 517 then at the pivotal 500 level. The area of the rising 40-day WMA also often acts as support during technical corrections. The charts that follow show areas of potential resistance for some of the regions leading indices. In all cases when setbacks do occur the maximum extent will be the area of the rising 200-day WMAs.

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 9 Kospi 200: Potential resistance at 273284

296 May 11
280 resistance

Channel resistance

Measured move

269 (+26%)

Sep 11 213

227 Dec 11

Source: Mizuho research, Updata Professional, Bloomberg

The Kospi 200 (267) has resistance at 273280. At 284 the index would have advanced by one-quarter from December 2011 low of 227 and one-third from the September 2011 bear market low of 213.
Fig 10 HSI: Potential resistance at 22,00023,480

24,989 Nov 10

Trendline resistance

Channel resistance

21,760 Resistance and measured move objective around 22,000

17,613 Nov 11 Oct 11 16,170

Source: Mizuho research, Updata Professional, Bloomberg

The Hang Seng Index (21,549) has some chart resistance just above the recent high around the 22,000 area. Trendline and channel resistance converge around the 23,000 area. At 22,350, the index would have advanced a Fibonacci 38% from the October 2011 bear market low of 16,170. A one-quarter advance from the November low of 17,613 would result in a move to just above 22,000, whilst a one-third gain would see 23,480.

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 11 HSCEI: Potential resistance at 12,00013,000

14,219 Nov 10

Trendline resistance Measured move objective

Chart resistance around 12,000

11,916

9,369 Nov 11 Oct 11 8,059

Source: Mizuho research, Updata Professional, Bloomberg

The China H-share Index (11,824) has chart resistance just above the recent high at 12,000 and a measured move objective around the 12,800 level close to trendline resistance. At 12,088 the index would have advanced 50% from the bear market low and a Fibonacci 62% advance would lead to approximately 13,000. A one-third advance from Novembers 9,369 low would take the index up to around 12,500.
Fig 12 TWSE: Potential resistance 8,2508,800

9,207 Feb 11

Trendline resistance

Chart resistance around 8,500

Dec 11 6,609

Source: Mizuho research, Updata Professional, Bloomberg

The Taiex (8002) should be able to move away from resistance at 8,000, the next chart resistance is around 8,500. There is trendline resistance at 8,6008,700. A one-quarter advance from the December 2011 low would see the index reach 8,250, while a one-third move would see the Taiex trade at 8,800.

10

23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Trade Recommendations: BUY HDFC Bank, Tata Consultancy and Weichai Power
Fig 13 HDFC Bank (HDFCB IS)

Old resistance 497519

539

396 Feb 11

473

154.80 Mar 09

Source: Mizuho research, Updata Professional, Bloomberg

HDFC Bank (HDCFB IS INR531.45) following 16 months of ranging the stock has broken out to a new all-time high, a strong message so early in a new bull market cycle. The old range provides an initial measured move objective of INR600625. Go 100% long at market, using a daily close below INR473 as a stop loss (approximate risk 11%). Average 30-day volume: USD32.7m.

23 February 2012

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Technical Research | chris.roberts@hk.mizuho-sc.com

Fig 14 Tata Consultancy (TCS IS)

Apr 11 1,247

902
Aug 11 (-28%)

1,267
1,045 support

208 Oct 08

Source: Mizuho research, Updata Professional, Bloomberg

Tata Consultancy (TCS IS INR1,252) after some 13 months of failing to move away from the INR1,200 area, the stock set a new all-time high of INR1,267 yesterday. Next resistance is at INR1,350, a 50% advance from the 2011 low. Go 50% long at market and 50% long at INR1,208, using a daily close below INR1,045 as a stop loss (approximate risk if fully executed 15%). Average 30-day volume: USD42.3m.
Fig 15 Weichai Power (2338 HK)

Dec 10 60.45

49.00 Jul 11

30.60 Oct 11 (-49%)

40.10
support

3.73 Oct 08

Source: Mizuho research, Updata Professional, Bloomberg

Weichai Power (2338 HK HKD45.70) the stock halved during 20102011, bottoming at HKD30.60 last October. The recent break above HKD44.20 has put Weichai into a new uptrend. The next resistance level is at Julys HKD49.00 high. Longer term, if our bull market view plays out, wed be expecting new all-time highs. Go 100% long at market, using a daily close below HKD40.00 as a stop loss (approximate risk 13%). Average 30-day volume: USD17.3m.

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23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

The Last Picture Show

US equities: NDX and SPX
The Nasdaq 100 (2,580) has traded up to 2,602 this month taking the index to the highest level for 11 years. The new highs have confirmed the break above the 2007 high of 2,239. The next resistance zone extends from 2,8003,000, this includes the level where the advance from the 2008 low would be equal in percentage terms to the 20022007 cyclical bull market. The S&P500 (1,358) has been tracing out a typical secular bear market pattern since 1999. This should mean that gains here will be capped at approximately 1,5001,600 (upside of 1018% from current levels). Having successfully negotiated resistance around the 1,300 area, we do not think last years peak of 1,371 is going to be that much of an issue. Two levels to consider: 1,516 a 50% advance from the 2010 low and 1,612 a 50% advance from the 2011 low.
Fig 16 US equities: NDX and SPX

4,816 Mar 00
Retracements of 20002002 collapse: 71% 62% (+182%) Oct 07 2,239 (+155%) 2,602

Mar 00 1,553

Top of the secular bear market range

1,576

Oct 07

1,371 May 11

1,011 Jul 10

1,075 Oct 11

795 Oct 02 (-83.5%)

1,019 Nov 08 (-54%)

769 Oct 02

667 Mar 09

Source: Mizuho research, Updata Professional, Bloomberg

23 February 2012

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Technical Research | chris.roberts@hk.mizuho-sc.com

Scorecard 2012
Recommendations highlighted in Madness of Crowds Open positions
Open positions Acer AIA Group Beijing Enterprises CNOOC Pegatron Avg return (%) Bloomberg 2353 TT 1299 HK 392 HK 883 HK 4938 TT Entr y date Position Long/ Short 10 Feb 12 10 Feb 12 10 Feb 12 10 Feb 12 10 Feb 12 50% 100% 100% 50% 100% L L L L L Country TW HK HK HK TW Entr y price 42.89 26.25 46.71 17.33 39.11 Last price 43.15 27.75 48.75 17.60 36.75 % Gain/(loss) since trade date 0.3 5.7 4.4 0.8 2 (6.0) 1.0
2

Stop loss Other instructions/comments (close only)3 36.45 Buy another 50% @41.50 23.55 40.00 14.74 Buy another 50% @16.56 34.00

Closed out positions

Stock name Hong Kong HSI Korea Kospi 200 Taiwan Taiex Avg return (%)
1 2

Bloomberg HSI KOSPI2 TWSE

Date Position L/S Country recommended 18 Nov 11 18 Nov 11 18 Nov 11 100% 150% 50% S S S HK KO TW

Entr y price 18,785 247.13 7,274

1

Exit Price 20,484 256.20 7,707

% Gain/(loss)4 (9.3) (6.3) (3.8) (7.8)

Other instructions/comments Bought on 27 Jan @20,484 against a stop of a close above 20,273 Bought on 30 Jan @256.2022 against a stop of a close above 258.00 Bought on 7 Feb @7,706.67against a stop of a close above 7,744

Average price Gain/Loss adjusted for position size 3 A close below this level will result in the position being removed at the next da ys VWAP 4 Includes 1% per completed trade for slippage and commissions

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23 February 2012

Technical Research | chris.roberts@hk.mizuho-sc.com

Fundamental Ratings for Companies in This Report

Company name (Bloomberg code) Acer (2353 TT) AIA Group (1299 HK) CNOOC (883 HK) Beijing Enterprises (392 HK) HDFC Bank (HDFCB IS) Pegatron (4938 TT) Tata Consultancy (TCS IS) Weichai Power (2338 HK)
Note: NR = Not Rated. Source: MHSC Group

Date of recommendation 28-Nov-2011 25-Nov-2011 18-Aug-2011

Recommendation BUY BUY BUY NR NR NR NR NR

Relevant disclosure

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RS NR

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Technical Research | chris.roberts@hk.mizuho-sc.com

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23 February 2012