This superb rally back up may surprise many many investors. But the signs are clear. KLCI is indeed still in a strong short term uptrend. Will this uptrend continue or is it time to sell?
In order to answer this question we need to have an unbiased look at the price action as well as the technical indicators of the KLCI. So without further ado let us take a look at the charts of KLCI.
Let us start off with the daily chart of the KLCI. As you can see from the chart above, the KLCI had a really superb rally but it is about to hit a resistance area.
The resistance area is made out of price. A support area once broken now becomes a resistance. The other thing is that the 1800 round number can be a psychological resistance area. Therefore, some resistance as the index hits the area can be expected.
One good thing is that the previous relief rally back in June 2018 may have helped to absorb some resistance power of that area. That is where the index rally hard only to form a topping tail and crashed lower.
I have a feeling that the index is likely to rise further even after it hit the 1800 area mark. But what I would like to see is for the index to consolidate a bit and then breakout higher. The consolidation will be perfect to absorb whatever remaining sellers that may want to sell because they lost a lot of money buying stocks before and after the election.
Therefore, a breakout of the consolidation is very buyable. But that is if a consolidation appears.
There are 2 good signs for the bulls...
One is that the index manages to break above a downtrend line. And secondly there is a possible bullish cross about to happen. The last time we had a bullish cross, the index had a nice rally. But as I said earlier, I would like to see a consolidation happen in conjunction with the bullish cross as this will give me more confidence that the break higher will be sustainable.
One of the reasons why I feel that the KLCI is likely to go higher is a study on the 60 min chart of the KLCI. If you take a look at the 60 min chart of the KLCI, you can see there is quite a lot of congestion area at the 1760 area. This long sideways movement has been broken out of.
Thus, the area now acts as a possible support for the KLCI. Therefore, my belief is that if the KLCI can stay above this 1760 area when resistance hits, it is likely to continue to move higher in the future.
The nice bullish run since early July 2018 started off with a bullish cross and a breakout above a consolidation. From there onwards, notice how the index has managed to stay above the rising 60 min 50 MA. This is a picture of bullishness and traders should continue to be bullish on the index as long as it stays above the 60 min 50 MA.
A simple trend following tool that has yielded a nice return since the bullish cross.
As the index rise and rise, some may wonder....how do I buy the index?
Well, since it is in an uptrend, your entry will be based on continuation patterns...example box breakouts and ascending triangles etc etc in the 60 min chart.
Stops are put below the patterns and you hope that it continues to go higher. But of course do note that there is resistance overhead so one has to calculate the risk rewards associated with it.
The best time to long is of course right near the start of the uptrend when the bullish cross breakout appeared. As the index rises, the risk reward may go down.
Finally, lets take a look at the weekly chart of KLCI.
I have done an explanation on why the KLCI rallied, you can check the past post here...Technical Analysis Lessons From KLCI's Chart.
If you look at the weekly chart above, you will notice that the MACD Histogram and Stochastics had pointed to a bullish rally. Stochastics was oversold and the MACD Histogram has shortened telling us that bearish momentum was slowing down.
What you want to notice is that the stochastics is somewhere near the 50 mark and the railroad tracks are still smooth. When stochastics are moving up in a smooth railroad track fashion, this is conducive for rally environments which you can see how it happened the last time the stochastics had a railroad track back in late 2017.
The MACD is also about to give a buy signal but I would not advice you to take actions based on that signal as they often come a bit late. What it does tell us is to keep an open mind to higher prices in the mid term.
But I think that trading actions should be taken in light of what is happening in the 60 min charts. That would be better for timing and trading purposes.
Hope this helps and have a great trading week.
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