Technical In Depth – 7th April 2009

Okay I am gonna go into the charts and go through what I see. Incidentally my trading partner Ash and I went long on StraitsAsia as a breakout play. Looking at the queues today it tested a very important resistance and failed to follow through. With the buying looking weak we decided to run. I think it was a pretty neat effort for an overnight trade, thanks Ash!

Moving forward, let’s see what I noticed. Some bearish divergence. Now this started to show yesterday at the index went for a new high. However a lower high was noted on the MACD histogram. Due to the time line, it may not be a strong one but it could signify a retracement in the very least. And we saw that today. Bearish divergence coming into fruition. If you notice my blue arrows, you will see that bearish divergence. Interestingly if you flip the fibonacci around, you will notice 50% is where 1660 is. Which means if we take back time, and did a projection for an upside, 50% upside would be where you will see the high at. 50% is not a fibonacci level but the market tends to have some reaction at that level. So, where do we go from here.  If we rebound off 1710, it is relatively bullish still and it would be where I would take profits. 1660 will be the next critical level. If that cracks, it is the first warning of a change in trend. In fact to be honest, a break at 1710 is the first indicator of a possible change in trend.  MFI is extremely overbought which is rare for an index, especially in a bear market. Every bear market has a super rally. I have been expecting it but unfortunately I did not ride on this one. This could be one of the super bear rallies. From the past, it is possible to have 2 super bear rallies. So where would a super bear rally appear to be a sustainable bear rally?

I flipped to the weekly chart.  A breakout from 20MA resistance confirms the super bear rally. By the way for the bear market thus far it has not broken out of that. So this is the first. The question is, will we end this week red so much so the MACD histogram will turn red? Where will the super rally go if it is to turn bullish? At least 1960 which would be a breakout of the bottom we have seen.  Can u see the bottom? Since the ‘crash’ we have been forming a bottom although movement between the highs and lows is big enough to play, some 500 points.  So a breakout either way will signify a new trend. If it breaks out 1960, bullish. Prepare to stay on the long side rather than on the short side. Break the lows and that’s major trouble.  So do keep in mind on that.  How do you know if a rally ends as a sucker’s rally? Those 2 lines are one of the best levels to look out for.  First support on the weekly chart is around 1600. Not the first support rather but it would be an interesting one. Remember, this is the weekly chart.

Let’s flip to UOB. Lovely.  Same bearish divergence, lower volume on the current leg up. Do u know what this reminds me of? The STI in Oct 2007 when a new high on the STI was made, but bearish divergences were everywhere. Take a look here.

Oh by the way, if you were back there, where would be the point to cut long positions? When 3640 broke.  The first lower high seen by the arrows would be the FIRST warning that something is not quite right. See how TA helps in trend analysis?

Here is a look at SIA which is what I would expect for a sustained buying strength. This is confirmed today as it bucked the trend, although it remains resisted.

Capitaland has a very nice bearish candlestick formation. I will target a low of 2.30 for now. I will likely close some positions there if it does hit and see how the price behaves. It broke 2.60 today, so let’s see if it confirms that break tomorrow.

SGX also pretty nice shooting star. What it did today was to gap cover its support, if you noticed.  Histogram does not have a bearish divergence but it does have a ‘double top’ of sorts if I may use that term. This has a lot to do with volume.

Same pattern on the HSI as well as you can see.

On the DJIA, the move up has been resisted by 100MA. This is weaker than asian markets where we have long broken out of 100MA. Attribute this to a different wave count.  Let’s look at 7710 and 7490 for some support. A break below. . well.. you know what it means by now.

Levels for S&P is also seen. I am doing these for myself too so I can remember where the important levels are, to see if we are heading for a mere retracement (possible continuation on the upside) or it becomes a reversal.

So all in all, what is the story that seems to be unfolding? Distribution. The big players are letting their positions go slowly. They are not done with it yet. When they are done you will see buying stop completely, with only retail investors being conned into carrying their positions. What is likely to  happen is a nasty fall. Volume can speak a lot. The downside does not really require heavy volume, as it may be due to a lack of buyers. But if panic selling happens you see people dump at whatever price they can see at, you will a big move down with volume.  The bears would have gotten loose, and be kicking the bull’s ass everywhere.

On the flipside, what if it was a retracement? The STI’s first support is 1780. Resistance turn support. If this hold, it is extremely bullish and could see a new high formed.  A rebound off supports and into the next key resistances in the 1900-1920 range would be PRIME for longs to take profit. That is, if supports hold and the bulls charge all the way up.

Regardless of bull or bear, remember to take profits promptly. It is NEVER wrong to take profits along the way. Do NOT be greedy as a sudden tsunami can sweep your profits right into losses, especially if you entered at a less ideal position.

Bottom line? Rebounds off 1780, prepare to go long. A break of that, it is time to take profits off longs, and wait for better entry positions. Let the dumpers and bears do their work to knock the price back down. Fundamentally, I feel we are still screwed. The stock market has always been a leading indicator however, so it is nice to watch where the market heads and it will provide some direction for the guy on the street at the end of the year. Pay rise? Bonuses? Better jobs? Look at the market 6 months before and you could have a rough idea what is in store. Remember what happened 6 months ago? CRASH. And look at all the shit that is flowing on mainstreet right now.

Stay focussed. Handle emotions well. Work hard.

Moving on, I will be moving onto a new role at work in a short while. This implies I will probably not be able to post intraday information. In fact I will need to seek information from my remisier and trade alongside. I will however still write market reviews after markets are closed. Don’t worry I won’t leave here so quickly:)

But if you wanna do proper trading with a trustworthy TR, I’ll actually say Jay is pretty neat. Without this mentor of mine I might have missed out on observing a lot of things. U don’t need a TR who makes buy or sell calls all the time. You need one who knows what he is doing. And do it WELL. That is my standard. I have no qualms about it.