SUPPORTLINE by FONG MIN YUAN

THE FBM KLCI entered a correction phase yesterday after having dropped about 11% to 1,692.32 points from its historical closing high of 1,895.18 on April 19. The downtrend had accelerated on June 7 after a brief rebound that fell short of passing the 50% retracement level. Consequently, the index fell through several support levels to breach a psychological level of 1,700 points. Given the steep decline, the shortterm 14- and 21-day simple moving averages (SMA) made negative crossings with the 200-day SMA during this period. The 50-day SMA, pegged at 1,818, has intersected the 100-day SMA and looks headed for the 200-day SMA, currently sitting near the 1,800 mark. Short of a reversal, a crossing of the two lines looks imminent, resulting in a “death cross” signalling a long-term bear market. While the FBM KLCI tested the support level of 1,709 on Wednesday, yesterday’s selling pressure pushed it to a low near the following support of 1,680. However, the support held and the index pared losses headed into market close. Should the correction continue today, the index is expected to find further support at 1,652, followed by 1,609 points. A rebound today could see the index attempt to return to the support-turned-resistance of 1,709. The technical indicators are over- whelmingly bearish. The slow-stochastic momentum index slipped into oversold territory at the start of the week and continues to head lower. The 14-day relative strength index also shows bearish momentum at 16 points. Meanwhile, the daily moving average convergence/divergence line is well submerged in negative territory. While it briefly straddled the signal line, it crossed once more into a “sell” signal at the start of the week. The money flow index is also moving lower towards the 30-point mark, which indicates a bearish trend. The comments above do not represent a recommendation to buy or sell.