KLCI Downtrend To Continue

The fall in Dow Jones Industrial Average shows a change in market trend and economic conditions.  Big money from hedge funds, institution and fund managers withdrew in droves, causing great volatility in the market.

Looking at the charts of KLCI, it looks very similar to the drop in 2008 when the Lehman Brothers collapse brought about a big drop in stock market worldwide. 

The index is trying to find a bottom and it looks like a rebound may materialize.  However, it will face resistance at around 1500 level.  Judging from the magnitude of the decline, the bears are still in control and the strategy should be sell on strength as the market is poised to move lower.

KLCI In Bullish Trend

KLCI broke out of its resistance level of 1560 level and it is now at the upper channel of the Bollinger band.

The GAMMA chart is showing strong uptrend with the short term and long term groups of moving averages showing bullish trend.

This shows that both short term traders and long term investors are supporting the market.

In the short term, the market may pull back towards its 20 day moving averages.

If it does so, then it will be a good time to add into your positions.

KLCI Likely To Be In Trading Range

KLCI index rebounded off its lower Bollinger band on 28 Feb.  The index is now above its 20 day moving average and is set to test its upper Bollinger band at around 1539 level.

Technically the index looks bullish.  The MACD indicator just made a bullish crossover with its signal line.  The +DI is now above its –DI line.  However the ADX indicator is still low at current levels and that means that we do not expect a strong uptrend.   2 day RSI is reaching overbought levels and we will most likely see a pullback.  The index looks set to remain in trading range between 1476 and 1539 levels.

KLCI In Correction Mode

KLCI has been in correction mode for the past week.  The index hit the upper Bollinger band and has now pulled to the lower boundary.  It looks set for a rebound on 26 Jan but the bulls could not overcome the selling pressure.  With the Dow Jones dropping more than 100 points on Friday, the index should drop below the lower boundary soon.

The force index is also showing that the bears are having the upper hand.  Buying could only start when the force index goes above the zero line.  The MACD indicator is way below its signal line, giving more reasons for traders to go for a short position.  The RSI rebounded from the oversold region but it did not manage to go above the 50% line.  This is also a negative sign.

All in, the index is likely to go lower next week. 

OSK Holdings Berhad - Weakness ahead

OKS Holdings Bhd made a double top formation and the share price has broken the support of RM1.97 which is the mid point of the “M” formation.  This usually mean that the stock price is on its way down.

The next support level is near RM1.70 which is the point at which the stock price rebounded from its previous uptrend channel line.

MACD line is way beneath its signal line indicating that the bears are in firmly in control. RSI has not reached oversold levels so expect the selling to continue today.

Tan Chong Motor Holdings Bhd

Tan Chong Motor Hodings Bhd broke out of its down trend line on Thursday 13 Jan 2011 and it has managed to stay above the down trend for the Friday session.  This is a good sign.   The MACD indicator made a bullish crossover above its signal line indicating further strength may be possible.  On the GAMMA charts, you can see that the shorter term moving averages are beginning to swing up meaning that short term traders are starting to push the prices up.  The long term players have not joined in the party yet as shown by the longer term averages.  The RM5.26 level is acting as a resistance for further up move.    Support is at the down trend line and subsequently at RM4.94 level.

KLCI Still Bullish

The stock market made a great start for 2011.   The KLCI index is up 54 points for the point, a move of 3.5%.   The question is whether this is just the Capricorn effect or is it an indication of better times. 

The index is now clinging onto the upper band of the Bollinger charts.  And the last 2 days we see 2 black candles and the last black candle looked like a hammer.     The appearance of a hammer in an uptrend is usually dangerous as it will point towards short term correction depending on whether the price can stay above the low of the hammer which is in our case at 1572. 

Trend wise, the market still has positive momentum.  The MACD indicator is safely above its signal line and the ADX indicator is approaching 40 level with +DI above –DI.  All these points to a high probability of a continuing uptrend.  The Force index is also favouring the bullish investors and traders.

With indicators pointing towards further strength, it will be wise to load up during pull back phase.  The support is at 1530 and any pullback towards this region is a good time to pick up some index stocks.    

Double Top and Head & Shoulder Pattern

Chart pattern is used extensively by traders to identify candidates that are likely to make a big move either upwards or downwards.  Traders need to look out for two important patterns in 2011 in order to avoid being hit by a sell down.  These two patterns are the double top formation and the head and shoulder formation

Conditions for double top formation

1. Stock is in an uptrend
2. Forms a high that is lower than the previous high
3. Drops below the valley between the two highs

Conditions for head and shoulder formation

1. Stock is in an uptrend
2. Stock makes a lower high compared to the previous high
3. Stock drops below the neckline between the two shoulders pattern

Note that for these two patterns, the stock price needs to drop below the valley or neckline in order for the pattern to be valid.  Once the formation is complete, the price will usually go down dramatically as these two patterns are closely watched by the bears to identify candidates to short.