FKLI - Is The Market Staging A Rebound ?- 12/3/2012

Last week I called for a little caution on the sell side as the ADX has gone to the extreme zone. It turned out the sellers were a little jittery which allows the buyers to regain some ground. Last Wednesday after price went to a new low but immediately closed back up. This was followed on the next day with a closing above the bottom band. I closed off the shorts positions and turned long because this move is been back by a positive Stochastic. By last Friday, the Stochastic has crossed up its 20's signal line which offers a more comforting buy signal. The MACD is making a turn upward though it remains negative. The DMI is also trying to close the gap between the D+ and D- with the ADX above both. With this , I am calling the market is oversold and with the ADX truning flat, I am also calling the prior sell cycle may has came to an end (temporary or otherwise).

I would use the previous low minus 1 point as my initial stop as during most initial stage reversal, the band is always tested again and stops will be hit easily.


 

The weekly chart remains negative as the Stochastic and MACD are still falling with the DMI expanding their gap. The rising ADX is complimenting the trend. But there is an interesting item here . Though prices stay below the bottom band, last week's Japanese Candlestick is a long legged Doji where open and close is almost same but with a drastic low. This Candlestick is usually taken as a bullish sign since it is bouncing back from support (see horizontal line marked out at chart) and it is usually associated with possible reversal situation. With the daily chart oversold, we may see a possible upward action from here.  But since all the indicators remain negative , it would be prudent to view this as a technical rebound in a bigger bear cycle.

 
At the monthly chart, thing begins to look perilous for the bulls. For the first time in 15 months, price has closed below the top band for the first time. And both the Stochastic and MACD have turned negative. The only "saving grace" is that the ADX is still drifting downward, this would mean that there is no new trend in this market yet. But there is a very important item to keep an eye here and it is also a bearish divergence formation. This market will need to close back above 1630 in order to erase the bearish readings.

To put all the above in a summary:- on the long term parameter, this market is due for a major correction which may has already started. On the shorter parameter, we may be getting a technical rebound. As a trader, I swing with what the market sings, but I would have to keep an eye on the bigger picture.