1) FBMKLCI is now below the 30-month EMA line. In the past 3 instances when this had happened (A, B & C), the market entered into a bear market.
2) 20 & 30-month EMA lines have both flattened. This is the precursor to both these EMA lines turning south. Again, these are present in the 3 instances mentioned above.
3) MACD has already cut below the MACD signal line. Again, these are present in the 3 instances mentioned above.
4) Slow Stochastic have gone below the 50 level. Again, these are present in the 3 instances mentioned above.
Chart 1: FBMKLCI's daily chart as at May 21, 2015 (Source: ShareInvestor.com)
What would trigger a sharp drop in the market? There are a number of possible triggers, such as a sharp fall in Wall Street or Shanghai, a nasty market reaction to Greece's highly likely exit from the European Union, a blow-up in Ukraine and, of course, a fallout from 1MDB.
If the bear market were to set in, there is no telling how low the index may go. While we can see support at 1700, 1670 & 1600, I believe that the bottom could well surpass these levels. If we use the upward channel as a guide, it is possible for the index to go as low as 1200.
In view of the above, I believe we should be very careful in this market.
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