FKLI - Stay alert and keep stops tight - 28/9/09

Even though last week's stop at 1208 is still intact, this market is beginning to warrant more attention. Last Friday it opened below the upper Bollinger Band, though it managed to close back up above it, I think you should raise stop to 1215 as to protect your profit.

The MACD though remains positive but it has begun to drop its head (direction) which is telling us that it has begun to lose momentum. The Stochastic has already turned negative though it manages to stay above its 80's signal line. I would pay attention if the Stochastic when if it crosses down below its 80's signal line or when the MACD crosses down which I would take them as an initial sell signal.

I am getting increasing bearish as the Stochastic has already formed a minor bearish divergence and so will the MACD if it fails to hold above the upper Bollinger Band. Please note this would be 3rd bearish divergence it is forming now which is rare and will be extremely bearish. A bearish divergence is a classical sign that the market is unable to maintain a real momentum, but confirming the past few weeks of up moves were merely pushes that the big boys are trying to unloading their holdings rather than adding to more new net long positions. You should also take note the ADX is now above both the D+ and D- which may be confirming this market is already overbought.

Another piece of more abstract "evidence" would be for the past few weeks there are increasing number of "experts" telling us that our economy is getting rosy and recovery is already in . When there is the crowd singing praises and turn unreasonable bullish, my perception always tell me to start looking at the opposite direction.

Meanwhile its weekly chart still remain bullish and there is little evidence telling us to be bearish. Price is maintaining above the upper Bollinger Band. MACD is still positive but also starting to lose momentum. The Stochastic is also holding above its 80's level. The weekly ADX has begun to rise again.

So the weekly chart stays bullish while the daily chart is still pretty BUT has flashed many warning signs therein. So despite having saying all the above doom and gloom stuffs, this is NOT implicating that this market will collapse tomorrow, BUT with the bearish divergences, this market will definitely collapse soon. The ultimate question will be "how soon ?". The trading plan has always been stay with the existing trend (which is still on the buy side) until it breaks something and tell us to reverse our position. So for the time now, stay long, maintain a tight stop.