The technical outlook of the FBM KLCI has been favorable since the market violated the downtrend line with a 15.73-pt gain. The index continued to trade steadily since the breakout, which wrote off the possibility of the index creating a downtrend channel. Thus far, the index is developing as we haveexpected after confirming the “Long Lower Shadow Line” and violating the downtrend line.
Looking at the market action since last Friday’s strong gains, we think the index would soon be able to surpass last Friday’s intra-day high of 1,529 pts. Hence, it could be yet another round of brief downdraft after the market experienced the third major breakdown (violation of the more than 6-month old uptrend) since March 2009. The two previous major breakdowns - in January and May 2010 - also did not see the index pull back a lot more subsequently. From here, the index may start to trend sideways, or even resume its uptrend. We shifted our near-term view from neutral back to bullish on Monday.
Immediate resistance is still seen at the 1,524-1,536-pt area, followed by a tougher resistance at the 1,544 pt-level. To the downside, immediate support lies at the huge upside gap ranging from the 1,506 pt-level to the 1,519 pt-level created last Friday. The 1,500-psychological mark would represent the next support for the market.
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