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Wednesday, October 15, 2014

A 2011 correction in the making (Edge)

By Benny Lee / Jupiter Securities Sdn Bhd   | October 15, 2014 : 10:35 AM MYT  
The market continued to stay in its bearish mode. The selling pressure remained as the volume was firm but the index was declining. Technically, the FBM KLCI is strongly bearish as the short-term 30-day moving average has fallen below the long-term 200-day moving average. The last time this happened was in 2011 where the index fell 16% in two months from the then historical high. So far, the index has fallen only about 5% from the historical high, and 16% from the current historical high is roughly at about 1,600 points.

Momentum indicators like the RSI and Momentum Oscillator continue to indicate strong bearish momentum, similar to the decline in 2011. Furthermore, the FBM KLCI continues to trade below the bottom band of the Bollinger Bands and this indicates strong bearish momentum. We may expect some technical rebounds because of the market being oversold in the short term but these may be dead cat bounces as the market is still bearish.

If history does repeat itself, then we may expect a year 2011-like correction. With the current pullback, there is still room for the index to fall lower. The next technical support level would be at 1,750 points based on a 50% Fibonacci retracement level of the uptrend that began in early 2013 and a 23.6% Fibonacci retracement from the uptrend that began in late 2011. We could expect the index to trend lower unless there is a strong rebound, and that is if the index is able to climb above the 1,820 points support-turned-resistance level.


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