FKLI:- Finally the bear bares its claws 24/5/2010

Last week I wrote: "And I would remain alert as a massive downside break may be just around the corner." because the ADX has been below 20's since late April and the Bollinger Band has been tightening . These are classic signs of an explosive move is due soon. And this explosive move finally came on last Wednesday when price collapsed below the lower Bollinger Band and most importantly of all, it went below the prior range (which I had marked out with 2 horizontal lines.) 

 
Both the MACD and the Stochastic are now in conformity with each other. The MACD has crossed below its zero signal line and the Stochastic has crossed down its 50's signal line. Both are usually taken as a more significant sell signal. The most promising item is the ADX which has begun to rise and crossed above the falling D+  which is another great sell signal. The ADX has gone above 20's and the D- is widening its upside , both of which are confirming the beginning of a new trend.

Last week's gaping down action  have rendered placing of stops difficult as they are far from Friday's closing. I would think sticking to my trading system of using the lower Bollinger Band plus 1-2 points should be maintained as following our trading plan is of utmost importance even though it may mean foregoing some sizable profits. So the stop should be 1317.   

The weekly chart is fast confirming the daily chart's bearishness. The Stochastic has turned negative and when it crosses down its 80's signal line, the sell signal would be more prominent. The MACD has also turned negative. Price closed below 2 major supports of the upper and middle Bollinger Band, if price closes below the lower band by the coming Friday, then it would be official end of the prior great bull cycle that began March last year. The D- has also crossed above the D+, if next week's price is go below 1277, then that should be taken as another major sell signal.

With a bearish divergence found at both the daily and weekly chart, we should NOT fool ourselves and think this is merely a minor "correction" and go "accumulate on weakness". Baring any unforeseen circumstances (like another government's intervention), this market may be the beginning of the new bear cycle and it will get very ugly. Of course as usual, this does not augur well with the bullish statistics that you are reading now, but as proven numerous times , chart readings always foretell changes in the economic fundamentals well in advance. Just think how I called the return of US Dollars' current bull as early as last November ? The chart foretold the return of the USD bull when the 'fundamentals' were saying that it is becoming worthless toilet papers. So in the current case, I would place more faith in the charts than on the statistics.