Among a sudden glut of attractive looking global equity markets, Indonesia stands out based on a potentially very bullish pattern.

One emerging theme (no pun intended) in global equity markets is the brightening technical outlook among many international indices. Whether that means improving short-term prospects, e.g., Southern Europe and China, or potentially substantial long-term opportunities, e.g., Northern Europe and emerging Asia, the technical backdrop across international equity markets has not looked this attractive in a long, long time. Today’s Chart Of The Day on the Indonesian stock market is a good example of this theme given its potentially very bullish setup.

We have referenced the “cup-&-handle” pattern on several occasions over the past few months, including this recent post on the Indian stock market. This is historically a very bullish pattern which arguably applies to the Indonesian Jakarta Composite Index.

Once again, here is a brief description and bullish theory behind the pattern:

• The Cup (Spring 2015-Fall 2016, in this case): This phase includes an initial high on the left side of a chart followed by a relatively long retrenchment before a return to the initial high.
• The Handle (Fall 2016 to the present): This phase involves a shorter, shallower dip in the security and subsequent recovery to the prior highs.

The bullish theory is predicated on the idea that after taking a long time for a stock to return to its initial high during the “cup” phase, the “handle” phase is much briefer and shallower. This theoretically indicates an increased eagerness on the part of investors to buy since they did not allow it to pull back nearly as long or as deep as occurred in the cup phase. Regardless of the theory, the chart pattern has often been effective in forecasting an eventual breakout and advance above the former highs.

Will the bullish tendency some to pass in the case of the Indonesian market? It remains to be seen. In any event, the market is set up very well from a technical standpoint, in our view. And given the breakouts unfolding around the world, especially in Asia, a new up-leg for Indonesian stocks into all-time high ground would not surprise us.

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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.