The KLCI is currently at resistance territory after a nice big rally. I would consider a sideways trading a possible scenario at the moment.
With resistance above and support in the 60 min charts, it is likely to meander around for some time. While this might not be ideal for bulls, it is nevertheless needed as a period of rest for the KLCI.
Let's take a look at the KLSE's daily chart and 60 min chart below.
The chart above shows the daily chart of KLCI. I have highlighted the resistance area as red above. This resistance area is made up of people who bought stocks during that period and got stuck in them losing lots of money after the General Election in May 2018.
Now that KLCI has risen back to that area, the supply of stocks from people who lost money will create some havoc with the nice bullish trend we experienced for the past weeks.
Having said that, notice that the daily bullish trend has not ended yet.
I would say that we are currently transitioning from a bull trend to a sideways trend. This is a much needed rest to absorb the power of the supply from sellers.
There are some pockets of support below which I have highlighted in green. Therefore, one would expect that a sideways movement is in store for KLCI for the temporary time being.
We just had a bullish cross in the daily chart and therefore, as long as KLCI trades sideways above the support areas, I consider it to be a healthy rest.
Of course it would be best for traders to sell right near the top before today's collapse. You can see a big red bar today. The cautious mood and overbought levels in the Dow Jones and S&P 500 last Friday gave rise to today's sell off.
But actually the market itself has hinted of this big drop with the appearance of two topping tails although I would called them mini topping tails. Actually I have my own label for this kind of phenomenon.
I call them the "Twin Tower Effect". If you see them appearing in a stock chart, it is likely to have a sell off soon. The Twin Tower Effect is named that way because of how the Malaysian Economy collapsed after the completion of the Petronas Twin Towers. In fact most completion of mega buildings around the world mark the end of a booming market for the country because of excesses.
Anyway, the presence of this Twin Tower has not yet proved to be the start of a new downtrend for KLCI yet. With the Dow and S&P still in an uptrend and the KLCI is also still in an uptrend, we can just consider it to be a short term sell off.
Let's take a look at the 60 min chart of KLCI.
As you can see, the KLCI has had a very very nice bullish uptrend where people who bought at the low keep on making money non stop. That's because the market was trading above its rising 60 min 20 MA and 50 MA most of the time.
That is the perfect environment for trend trading in the short term. However, today it slashed through the 60 min 50 MA and therefore, we can expect the bullish nice uptrend to be over temporarily. A gap below the 60 min box and 60 min 20 MA help to expedite the sell off as well.
With layers and pockets of mini support below, it is possible that KLCI might meander and trade sideways for awhile.
Hope this helps your investing and trading. Remember to always only enter your trade with a proven trading strategy as all the best analysis in the world will not help the undisciplined trader.
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