FKLI - Are We Reacting To Euro PIIGs Or Are We Sick Too ? - 5/21/2012

I never underestimate the power of a divergence. I have been talking about the presence of a bearish divergence at the FKLI chart for the past few weeks and warned that we should pay attention to the sell signal over the buy. As last week began, market immediately collapsed and went below 1572, thus triggered a new sell signal. The fall has brought the Stochastic back in line with the negative MACD and DMI. I added on to my shorts position as soon I see the ADX begin to rise. If you are one of those contented type of trader, then place your stop at prior day's high plus 1-2 points, but if you are those of the more adventurous type, then place your stop at the lower band plus.

Since the ADX has begun to rise and last at 26's, I would advocate paying attention on the MACD over the Stochastic. You should take note that the DMI is expanding out. Both confirming a new strong trend. This could be just the beginning of more selling coming out across the horizon.


 
The weekly chart is also confirming the sell side on the daily chart as price has closed below the lower band. Both the Stochastic and MACD are negative. The ADX has begun to rise, though it is still below 20's. But with the DMI expanding outward, I would call this as an initial confirmation of a new trend. Last week price action was a very strong sell sign as the Japanese Candlestick black  body punched through both the middle and lower band in one go. There is  a new negative development at the weekly chart as it seems to be forming a nasty Head and Shoulder pattern which is usually a prelude to some nasty selling.

Last week I was thinking that this market may drag sideway further until we get an election announcement before any major price movement, but it turned out the PIIGs ghost came back to haunt everybody. From this little episode, you can see very clearly regardless of what we think or trying to explain the market, it is the chart reading that always point at the right direction.

As the PIIGs crisis would spread further across the Euroland as so many of their members have been mis-managing their finances. The next candidate after Spain should be Italy (with France not far behind) . As you would notice by now is that every new actor that come forth to the breakdown game is bigger than the last. Greece's crisis is actually kachang putih compare to what you are going to see when Italy begins to melt.

A few months ago, after the 1st episode of PIIGs crisis took a temporary rest after Greece changed their government, a very famous local stock market "expert" was commenting in his column that everybody has been "over-reacting"  as he feels the crisis has already subsided. I almost fell off my chair laughing. Many of us just do not know the size of the Euroland crisis and some of them just choose to disbelieve. And some always think governments are god and they can fix any problem. You should NEVER believe the government can take care of any crisis as they are the one which planted the seed of crisis in the first place and generously allow the problem to develop beyond control. With all the generous salary increment and benefits and other goodies freely dispensed out by Najib's administration, Malaysia could just revisit  the 1998 episode. And I am saying this because I am reading something "bad" at the Ringgit chart.