FKLI - The Beginning Of the End ? 1/2/2010

The most important lesson I have ever learnt from studying technical analysis is that whenever I see a divergence between the price action and an indicator (especially the trending type like MACD ), I always get cautious of whatever prior positions I hold. As in the cas of FKLI, since there were already multiple bearish divergences formed since last August, I become very suspicious of those "V" recovery or "we are out of trouble" kinds of stories. There are now 4 bearish divergences found in the daily chart.

The daily chart is nothing but bearish as the MACD which has turned negative and is now crossing down its zero signal line. This is usually taken as a more confirming and stronger sell signal. The Stochastic may has crossed into below the so-called oversold zone, but please note that the ADX has begun to rise and it is last at 25. Once the ADX is in force, it is confirming a trending market gathering strength. This is usually mean the Oscillator indicators like RSI, W%, Stochastic, MFI etc will remain "oversold" and yet prices will keep on going new low. This is an valuable lesson to be learnt here:- when next time an analyst thinks the market is "oversold" and suggest you should "buy low", you should first make sure that is the market is in a trending mode or range bound mode. Also take note that the rising ADX crossed up the falling D+ last week, this is usually a very strong sell signal.

Price has also now gone below the lower Bollinger Band, further confirming that this market is in a bear cycle. This is the first time where price goes below the lower band since early December. Place stop at 1278.

 
The weekly chart shows price has closed below the upper Bollinger Band which offers the first sell signal. Last week's low is lower than the fractal low of 1251.50 on mid December  last year.  The Stochastic  is negative and has crossed down its 80's signal line which is offering another initial sell signal. The MACD  is negative and falling, but it is still relatively "far" from its zero signal line, so maybe the bear may not has gained control completely yet. But its falling has successfully formed a bearish divergence at the weekly chart. This is a very important sign that I need to see in order to predict this market's bull  is/will be dead.

The weekly ADX has also turned downward which is confirming the prior bull trend has ceased (even though it may be temporarily) Next 2 important items to watch out for will be:-  next Friday's closing of below the bottom Bollinger Band of 1234 and D- crosses above the falling D+, then a stronger bear will emerge.

Fundamentally speaking:- I think you should watch out and start worrying about the numerous possible sovereign defaults  across  Europe. One reason why the USD has been strengthening  is  possible crisis events . Investors always without fail, flock to USD when  there is a crisis.