Yesterday’s 32.08-pt slide has more or less disconfirmed the “non-classical Hammer” bullish candlestick reversal signal. As we mentioned several times before, another strong push to the upside is what we need to feel more comfortable that the previous downtrend has decisively shifted. This is because it was not a classical “Hammer” constructed on 26 Jan 2010 as the day’s rebound failed to push the index into positive territory but had instead ended the day with 6.43-pt loss. As such, it was not a very strong reversal signal.
Yesterday we saw the market start to retrace from the bottom of the uptrend line. What would worry the bulls is that the index eked out below the bottom of the “non-classical Hammer” or the 1,505 pt-level. We have said before that the slightly more than 20-pt rebound that occurred on the 26th of last month implied an obvious attempt at bottoming out. Then, during last Monday’s session, despite gapping down at the opening, the FBM KLCI exhibited a strong conviction to stay at above the bottom of the “non classical Hammer”, or the 1,505 pt-level. Since the index closed slightly below the 1,505 pt-level yesterday, a further drop from the current level would definitely make a big dent on market sentiment. A breakdown at the 1,505 pt-level would also be considered a violation of the key recent-low.
We shall see if the FBM KLCI can close back above the 1,505 pt-level soon. Holding up above the 1,505 pt-level would still see the market possibly creating a sideways trend at above the 1,505 pt-level. If not, a convincing breakdown at 1,505 might eventually pull down the index to the 1,474 pt-level, which is the next strong support we can detect.
Undoubtedly, the index - which is now trading at below the uptrend line - is looking weak in the near-term. Should the 1,505 pt-level be violated too, it will write off the possibility of building a sideways trend. If that happens, we will shift our near-term view to neutral.
Immediate support lies at the 1,500 psychological mark, followed by the 1,495 pt-level and the 1,474 pt-level. To the upside, there is immediate resistance at the 1,505 pt-level, followed by the 1,524-1,536-pt area.
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