Will the Ringgit Collapses again ?

Unlike the fundamental "experts", I and my school of technical analysts honestly cannot guarantee what will happen in the financial markets. But by using chart readings, we can educatedly "predict" what MAY happen next, especially at near those market terminal points. One of my 'enlightenments" from trading the markets for more than a decade is that nasty thing tends to happen when everybody is singing seas of praises. In the past few months, "experts" have been talking about emerging market currencies are the best thing ever happen after Marvin Gaye. I beg to differ.


 

Looking at the longer term parameter which is the monthly chart, we immediately take note the "era of Dr. M's WMD" when he imposed capital control and tied up the Ringgit. After which it appreciated against the USD . It is NOT about how strong the Ringgit has been but rather to do with how weak was the USD has been. The Ringgit touched a low of 2.932 in July last year and weaken a bit and generally it has been caught in a range. This is confirmed by the falling ADX (green line at the bottom panel) and prices caught inside the Bollinger band. The Stochastic (top panel) and the MACD (2nd panel) is contradicting each other with the Stochastic going negative while the MACD staying positive. A contradicting indicators mean the market is listless.

But a tell tale sign that I always pay attention to is the MACD has been marking higher troughs since April, 2008 to May, 2011 while prices had been appreciating to higher high (in this case, it is a lower low since Ringgit is "smaller" than the USD)  This is known as a divergence or put in Chinese saying - "the mouth is not reflecting the heart". Usually when a divergence occurs, it usually mean the current trend (in the case here - appreciation) is about to end and a new opposite trend is lightly to begin. And usually the new trend will be a powerful one.

Does this mean the Ringgit will collapse tomorrow ? No, I do not think so as the MACD is still below its zero signal line and the Stochastic has NOT turned around. We most probably will see prices blowing up when we get the 2 conditions in.

 

After we have studied the long term monthly chart, I will go a step down to the intermediate term weekly chart. As marked out with red lines, we are also getting a divergence setup here. Unlike the monthly chart, both the indicators are pointing upward in unison and the MACD is crossing its zero signal line currently. And I take note of the ADX which has been below its 20's value but it has begun to rise. When the ADX is falling and below the 20's, it means the market is "dead". As at now when it has begun to rise, it usually mean the market has begun to show some "life". But I usually would prefer to see it goes above the 20's to confirm a strong trend is in place.

I have drawn a horizontal line at the prices panel to mark out the 3.198 level. This has been a strong resistance in mid July and late November 2011. So if price is able to go beyond and close above this level, we should have a confirmation that the Ringgit is melting down.

I use "collapse" and "meltdown" because that is usually happen to the prices whenever there is a divergence found in the chart. The price action will  usually  find the fundamental "experts" shocked and awed and they would have to scuffle to look for excuses trying to "explain" themselves for missing that one.

 
By applying Fibonacci Ratio, the upside target will be at 3.90 or even 4.13. We hope we would not  see a full retracement back to George Soros' 4.88 level as it would mean Malaysia is in some kind of "end of the world" economic scenario. (think back 1998's) Hey, go tell Najib to fuck off throwing away all our money !!!!!

Just to add some fundamental spices to this Rinngit's collapse is that you should pay attention reports sipping out recently on Indonesia, India, Vietnam and South Korea's increasing reckless borrowings. All play in the familiar pre-1998 crisis buildup.

A disclaimer here (as usual) :- if Ringgit goes back below 2.930 and stay below there for 1 week + , then forget you read this essay.