A Ray Of Hope >>> KLCI shows first white candle in eight sessions

Following our “base building” and “slim spark of hope” note yesterday, the KLCI has shown some positive signs yesterday with its first positive white candle in eight trading sessions.

The Good : Possibly Positive for next 1-2 weeks
The 835 support level has proven itself to be a formidable support. Generally, a positive white candle after a brief base building process on a formidable support level such as this denotes positivity for the KLCI.

More feel-good for the Dow? Possible rate cut and decline in VIX gives added reassurance
The Federal Reserve will be announcing their decision on whether to hike or lower the Fed Funds rate today; there has been rising expectations of a possible rate cut from 0.25% to 0%. Implied probability for a rate cut has risen from 6% two weeks ago to the current 17%.While the likelihood is still not high, a rate cute would be an added if only marginal feel-good factor for the Dow.

What’s more, the volatility measuring VIX Index continues to dip. The decrease in the VIX index is currently adding more confidence
to the US markets, which fuels the current Dow Rally.

In addition, the next major resistance level lies at the intersection between the short term and mid term MAV line at the 880 level. From here till 880, the KLCI would have a practically resistance-free zone of 30 points to move upwards before encountering any major hurdles (880).

Still reasons to be cautious :
Though there be a white candle yesterday, it was in the form of an inverted hammer which means that there may still be a few bears waiting in the background. Buying volume in the KLCI has also yet to be decisively significant. This uncertain factors still holds us back from calling for the KLCI to fully rejoin the Dow and global rally.

Strategy : Bearish call suspended ; KLCI possibly positive for next 1-2 weeks. We feel that we must accord some respect to the Dow Jones which has already rallied a significant 14.3% since last week while the KLCI was submerged in its bearish state. Thought the KLCI-Dow correlation is still dipping, there still have to be at least a bit of catching up for the KLCI to do. Thus, we are suspending our bearish call for now. We are still uncertain of whether to jump on the bullish bandwagon, but we are certain that the KLCI has a positive upside of 30 points till the next major resistance at 880 for the next few weeks.