Despite the three weeks of selling, the index’s longer term trend is still up as it is trading above 20-week MAV and this average is sloping up. Nonetheless, the recent weakness, particularly the weekly ‘bearish engulfing’ candle formed three weeks ago, has to be nullified. Otherwise, the July all-time high might turn out to be a false breakout. Again, the trend will not turn down until the 1470 support level is broken.
The index is still trending lower in the shorter term. It has been making lower highs over the past three weeks while Thursday’s gap down, which visualizes weak sentiment, has not closed. A measured move down based on the drop of early July may take the index to as low as 1522.
Given the longer term uptrend, speculating a bottom is not altogether a careless move, especially given the positive performance of regional equities. The Straits Times Index has closed well above its 8-month downtrend for two weeks running while strength is observed in the mid caps stocks, which does not confirm the weakness in FBM KLCI. The FBM70 is trading above the 22 July high. The FBM KLCI also formed a ‘tweezer bottom’-like candle formation at 1545, which usually indicates a short-term bottom, right smack at its 100-day MAV and a 50% move from the early July drop.
If so, a return of buying will first be signaled by a closing above Thursday’s gap at 1557.26 and eventually above 1565.50, which is the high of 22 July. A rebound above these levels from 1545 pts will be especially bullish as it will indicate failure of the measured move. In fact, any rebound from above 1522 is likely to indicate the same. However, watch out for continued selling on a close below 1545, with supports at 1539, 1532 and 1522, which are the Fibonacci levels of the measured move. Stronger support should be at the psychological 1500-pt level.
(Chart extracted from ChartNexus)
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