FKLI - More Pondering Before The Fireworks ? - 2/4/2013

 

Last week the market still pondered on which direction to go next. The Stochastic ha turned positive while the MACD remains negative and continues to fall. The DMI stays negative and the ADX continues to rise. If you are still holding on to the earlier shorts positions, placing stop at the bottom band plus 1/2 points would be prudent to protect your profit. I would add on more shorts positions if price goes below 1610 again.
Since the Stochastic and MACD contradict each other, I would think the market will ponder further before going the next major direction. This is especially so taking that the Chinese New Year long holiday is less than a week to go and margins have already gone up. Traders would not want to load up their positions too much over the long holidays.


 

The weekly chart's Stochastic has crossed down its 80's signal line which by itself is offering a sell signal. The MACD remains negative and is falling. The DMI is also negative. So we are having all the indicators agreeing in consensus. But what is lacking now is a new trend as the ADX stays flat and at 13's lowly place. The bottom band of 1621 seems to be providing a strong support for the past 2 weeks where prices tried to penetrate but were unable to close below it. I would monitor this closely, for any closing below the bottom band should be a solid signal for the beginning of an end to this market.


 

The monthly chart is also beginning to add more weight to the sell side as the Stochastic has already turned negative , so is the MACD. Price has also closed below the top band, so if price is to go below its low of 1601 should confirm a new sell signal. DMI , the always slowest reacting indicator remains positive for now. And like those in the weekly chart, the ADX is flat at 13's and the D+ and D- have been holding tight to each other. Both these 2 are confirming a lack of trend in the market. An important item at the monthly chart is that it has also formed a bearish divergence with a new high but a lower MACD peak. This is adding more significance to those formed at the weekly chart.
With the multiple bearish divergences discussed here last week, the market is therefore more biased toward a major bear, so I would advocate more attention to the shorts signals over the buy signals. Market will usually do something dramatic after a brief period of consolidation (like now), so be alert. The logical thinking will be the market will do whatever it wants to do after the holiday, but markets always spring nasty surprises now and then. I continue to be more convinced that the present administration may lose power as the latest piece of evidence is that they may finally agree to recognize the Chinese independent schools unified examination, I personally think that would be the biggest manifestation of the sum of all their fears of losing the game.