Chart 1: FBMKLCI's weekly chart as at May 13, 2016_11.00am (Source: Shareinvestor.com)
If we use Fibonacci ratios to analyze and project the index levels where we expect retracements to end, we can see that the index found support at the 23.6% level in early 2015. After that retracement level failed, FBMKLCI dropped to the next retracement level - the 38.2% level - where it remains for the past 9 months. The bearish reading from the weekly chart above means that the index is now breaking down below the 38.2% level. The next support will be a non-Fibonacci ratio of 50% level of retracement at 1500-1550. Below that, we have the Fibonacci ratio of 61.8% retracement at 1350-1400.
Chart 2: FBMKLCI's monthly chart as at May 10, 2016
The sharp drop in the index this morning is likely to be related to new developments in the 1MDB saga (here and here); and another interest payment default by 1MDB (here). Like the political mess in Brazil, the endgame for 1MDB will play out for sometime. This will only serve to keep foreign funds away from our market (here) as well as dragging down the MYR and slowing down the economy.
In this bearish market, investors must exercise careful discretion in their investment & trading.