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Thursday, August 18, 2011

FBM KLCI: Resistance at 1510 (OSK)

The FBM KLCI’s rebound finally got underway but the index now faces resistance at the 1510-pt level, which could make or break the rebound. 

The rebound was finally confirmed after the index closed above 1490 on Monday, breaking the sequence of lower highs since the start of the sell-off 12 days ago. Its breadth confirmed the move as both the mid and small cap indices, together with the global indices, closed above the 9 Aug high. As the index rebounds, we now need to determine if the rebound is a correction of a downtrend or the start of a new up-leg.

As the index did not close below 1480 pts on weekly basis, the trading below it last week was considered a false breakout, i.e. the support level was not broken. As the weekly RSI was the most oversold since the start of 2009, we can assume that the rebound is not yet a downtrend correction, and at worst, a rebound of a sideways market. But to achieve this, the index has to break the series of lower highs made over the past month, preferably all the way to 1580.

Immediate resistance now lies at Tuesday’s high of 1510, which is potentially a strong resistance given the confluence of Fibonacci levels. It is a 62% retracement of the 1560 to 1423-pt fall and a 50% retracement of the fall of 1597 to 1423 pts. In fact, there is an unconfirmed weak candle just below it by way of the “Shooting Star”, where the “Upper Shadow” proves that 1510 is a selling level. Yesterday’s lackluster trade did not confirm nor nullify this. As such, today’s action may determine the next move. A close above 1510 may see the rebound continue, while a close below 1498 will raise the chance of the bounce being the first correction of a downtrend, at least in the intermediate term. 

Next resistance is now at 1530, the high of 8 Aug, where the 200-day MAV lies and also a 62% retracement of 1597 to 1423 fall. A close above it will add to optimism as it will confirm the upward bias of last week’s “Hammer”. Support lies at 1460, followed by 1445 and last week’s low of 1423.

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