Dow Dragonfly unconfirmed

Dow Dragonfly unconfirmed
But KLCI may not follow Dow’s negativity

The KLCI and Asian equity markets got a little ahead of themselves when they rallied on the possibility of a potential bullish reversal with the emergence of the Dragonfly candlestick pattern in the Dow charts on Thursday. However, we have said before that this pattern requires a confirmation, and no confirmation was forthcoming yet when the Dow dipped 82.3 points on Friday and marginally went below the critical 7,882 support line.

7,882 break not a “true break” yet Before traders rush into selling their equities just right after buying them not too long ago, it might be worthwhile noting that the 7,882 break cannot yet be considered a “true break”. While the 7,882 bottom was “broken”, a 32 point margin cannot be considered a true break. The onus will be on the bears tonight to make this 7,882 break a true break by extending the margin of the break. What’s more, the selling volume last night was relatively sparse and unconvincingly bearish.

KLCI looking positive in the short term
As can be seen from the correlation chart above, the KLCI’s correlation with the Dow is tailing off over the last few weeks. So even if the Dow decides to retest its November bottoms, it is possible that the KLCI might not follow the Dow down, at least not too much. This implies a capped downside for the KLCI.

The KLCI now looks decidedly positive in the short term. After a collision and convergence of the red short term line and the blue mid term line, a long white candle generally confirms a strong upward direction ahead. What’s more, the KLCI has breached above the 890-900 resistance zone with conviction and high volume. Our view on the KLCI is now positive in the short term.

HAPPY INVESTING & GOODLUCK2ALL