Bloomberg News

Indonesia Stocks May Extend Drop on MACD: Technical Analysis

November 23, 2011

Nov. 23 (Bloomberg) -- Indonesia’s stock index may extend its drop over the past two weeks after a signal in the moving- average graph indicated the gauge is set to decline, according to an analyst at PT Mandiri Sekuritas.

The indicator line on the moving average convergence- divergence graph, or MACD, of the benchmark Jakarta Composite Index fell below the nine-day exponential moving average line on Nov. 17, a signal some investors use to establish that a security will drop. The index has fallen 3.2 percent in the two weeks since Nov. 9.

“The MACD is one of the powerful momentum indicators, and the recent crossing sent a signal of a correction,” said Rafdi Prima, a technical analyst at Mandiri Sekuritas in Jakarta. “The composite index may test its key support level at 3,600.”

The benchmark gauge closed at 3,735.53 yesterday. The index has dropped 11 percent since climbing to a record 4,193.44 on Aug. 1, amid concern a worsening sovereign-debt crisis in Europe may prompt overseas investors to avoid riskier assets. The market tested its support level of 3,600 three times on Oct. 18, Oct. 20 and Oct. 21, Prima said.

Shares on the gauge trade at 14.6 times estimated earnings, compared with 9.9 times on the MSCI Emerging Market Index, data compiled by Bloomberg show.

Overseas investors bought a net 21.45 trillion rupiah ($2.37 billion) of Indonesian equities this year through yesterday, compared with 21.3 trillion rupiah a year earlier, according to data compiled by Bloomberg.

Market Concerns

“There’s still global market concerns and amid uncertainty like this, people’s choices tend to be either sell or hold,” Prima said. “Without any developments, the mood will turn bad.”

The last time the index’s MACD crossed its exponential moving average line from above was on Sept. 14, after which the gauge extended its drop to a one-year low of 3,269.45 on Oct. 4. Shares had a temporary rebound through Nov. 9 as companies announced third-quarter earnings, inflation slowed in October and Bank Indonesia unexpectedly cut its benchmark interest rate, Prima said.

The MACD indicator is derived by subtracting a longer-term moving average from a shorter-term one. A second measure, called the signal line, is created by taking an even shorter-term moving average of the indicator measure. If the indicator cuts above the signal it points to an uptrend and if it falls below, it marks the beginning of a downtrend.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

--Editors: Matthew Oakley, Richard Frost

To contact the reporter on this story: Berni Moestafa in Jakarta at

To contact the editor responsible for this story: Darren Boey at

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