FKLI - There is NO Black Swan in Technical Analysis 30/11/09

Did I foresee the collapse of Dubai World ? Yes and no. Yes in the sense every time when a government and their GLCs or politically well connected crony companies get overheated in their ambitions, we should expect troubles of crisis proportion to follow soon. And history just keep on repeating itself. Just think back what Dr. Mahatir's administration did (build and build and they will come policy) before the 1997 financial crisis. Dubai World is no different this time. Any fundamental analysts that worth their education should able to foretell the investors to take cover long ago.

And no, in the sense that even though I knew about what is brewing in Dubai, I am not able to tell you when it is going to blow up in our face. BUT, applying technical analysis, the multiple periods bearish divergences have warned me against adopting an overly bullish stance. So I did NOT buy the 'recovery" stories that the fundamental analyst crowds have been peddling for the past few months.

One thing you would have noted again by the current fiasco is that many of big name banks are getting hurt again. Among them are HSBC, RBS etc. Many small business men would tell you how difficult for them to borrow a few dimes from these banks for their REAL businesses. And yet these big boys seem to be so stupid (I actually would call them idiotic) to get burnt again and again by those fairy tales loans.



In the daily chart (I am using the next month chart as November chart expired by the time you read this) , the Stochastic has just falling below its 50's signal line which is another major sell signal. And the negative MACD is continuing its fall and also just gone below its prior trough which I usually take it as another major sell signal. Another damaging confirmation is the D- has just crossed above the D+ which is telling us the bull cycle is gone. But of course we need the coming Monday's bar to do a new lower than Friday's low (Wilder's extreme point trading rules) , seeing what happened last Friday on overnight DJIA , this should not be a problem. So if it does that, there is another sell signal. But having saying all that, we would need to see the currently falling ADX to rise again to confirm a new trend in this market.

Any breaks below the daily Bollinger Band of 1253 would flash another major sell signal. 1253 is a very important number as it is also the weekly upper Bollinger Band which upon breached is usually taken as another major sell signal. Other major sell signals would be MACD crossing down its zero signal line. Meanwhile place your stops at 1278.


The weekly chart still has not confirmed a new sell signal yet as the Stochastic , though negative is still above its 80's signal line. But if it is crossed down , then you may take it as an initial sell confirmation. The other item to watch out for will be a weekly closing of below its upper Bollinger Band of 1257. The ADX has turned flat for the past few weeks which I had interpreted as the market has lost its momentum. If it is to start falling, then I would read it as the end of the prior trend. So maybe you should keep an eye on this item too.

This market may be finally playing out the numerous bearish divergences it has been registering in its daily chart. If that is to be, then market may really see its pants drop.