The index’s intermediate term weakness lingers as it violated the August low. The indicators are pointing to a lower level but another close below is required to confirm the break, lest the longer term bottoming alternative scenario takes over.
The index’s technical picture has deteriorated further as it closed below the Aug intraday low yesterday. Another close below 1423 today should confirm the break. The current trend is especially weak as the break nullified the upward bias of early August’s “Long Legged Hammer” weekly candle. The index also formed the “Three Black Crows” candle pattern in the last 3 days, which is categorized as a continuation pattern where lower levels are expected. This fits in nicely with the last weekly candle, where 2 “Inside Week”s consolidation ended with a resumption in selling.
The divergence in the daily RSI, as highlighted in our previous report, has now turned into a curse for the bulls. Despite failing to break above the 40 level, the daily RSI is neutralized, at least compared to early Aug, leaving enough room before it gets oversold. Note too that the 200-day MAV line is now sloping down for the first time since turning up in 2009. Therefore, the series of lower highs is expected to continue. The current sequence is 1474, 1455, 1444 and 1434 pts. Support is now seen at the psychological 1400-pts and if violated, 1380, the 62% retracement of the May 2010 – July 2011 rally.
Nonetheless, the search for an intermediate term bottom continues. The weekly RSI is at its lowest since the 2008 low; yet the index is still at a high level. However, this can only be confirmed by a clear sign of buying which has yet to set in. A good start would be a close back above 1432 today, indicating a false breakdown, and subsequent break of the lower highs sequence. But any rebound will have a tough time scaling higher as there are many resistances ahead, at the psychological 1450 pts, the broken support of 1480 and the gaps of 1500 and 1530.
The index’s technical picture has deteriorated further as it closed below the Aug intraday low yesterday. Another close below 1423 today should confirm the break. The current trend is especially weak as the break nullified the upward bias of early August’s “Long Legged Hammer” weekly candle. The index also formed the “Three Black Crows” candle pattern in the last 3 days, which is categorized as a continuation pattern where lower levels are expected. This fits in nicely with the last weekly candle, where 2 “Inside Week”s consolidation ended with a resumption in selling.
The divergence in the daily RSI, as highlighted in our previous report, has now turned into a curse for the bulls. Despite failing to break above the 40 level, the daily RSI is neutralized, at least compared to early Aug, leaving enough room before it gets oversold. Note too that the 200-day MAV line is now sloping down for the first time since turning up in 2009. Therefore, the series of lower highs is expected to continue. The current sequence is 1474, 1455, 1444 and 1434 pts. Support is now seen at the psychological 1400-pts and if violated, 1380, the 62% retracement of the May 2010 – July 2011 rally.
Nonetheless, the search for an intermediate term bottom continues. The weekly RSI is at its lowest since the 2008 low; yet the index is still at a high level. However, this can only be confirmed by a clear sign of buying which has yet to set in. A good start would be a close back above 1432 today, indicating a false breakdown, and subsequent break of the lower highs sequence. But any rebound will have a tough time scaling higher as there are many resistances ahead, at the psychological 1450 pts, the broken support of 1480 and the gaps of 1500 and 1530.
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