Technical Review 7th September 2009

KLCI Daily


Source: Nextview

Despite all the potentially negative Technical Readings on the verge of triggering sell, markets did not do the most important thing, i.e. break the critical levels. 1 thing that I can be almost certain would be the explosion on the next movement. Market had been trading in such tight range it will almost always end up in violent movement after such limited volatility.

I highlighted last Wednesday that market was close to triggering major sell signal. However, it you look at how market reacted in the last 2 days:

i. KLCI did not break the lower channel.
ii. Bollinger Bands tighten further meaning that the violent movement is not on yet.
iii. MACD would not be triggering sell with such close this week.

Plus, if market were going down, it would have broken the support level easily. Having said that, KLCI has not broken its upper resistant either. When it does break either the support or resistant you will know it because the movement would be so perverse to recent movements.

For someone with a trader mentality like me, it is easy to decide at this point on what to do with market. My view remains the same as last Wednesday; stay out. However, if KLCI close above 1200 points, I would enter market because it has broken resistant. If KLCI close below 1150 points, obviously I’ll wait for market to stabilize.

From my calculation, whether KLCI breaks higher or lower, it would move by 7%-10% from starting point. At this level it would be 80-120 points. So, if KLCI close above 1200 points, if I enter market, my expectation would be around 1300 points. If I set my stop loss level at 1175 points, my downside would be around 25 points but my upside is 100 points. It would be worth to take the risk. I can’t enter market right now because I just cannot calculate risk/reward ratio at this point.

I believe by next week market would decide its next major movements. Some of us are hoping that market will go up and some hope it will go down. But in the end that is what the great thing about market. It does not matter what we think. It is what market thinks. Next week could be a great example of what happen once market decides where it wants to go. We can have some ideas where market should be heading soon but my experience tells me that it is best not to take side at moment like this, but be a follower to market next tidal wave.

In short, look at these 2 levels:

i. KLCI close above 1200 it will see a quick rise.
ii. KLCI close below 1150 it will see a quick fall.