Chart 1: FBMKLCI's daily chart as at April 11, 2017 (Source: Shareinvestor.com)
The "good" news is that the next strong support for FBMKLCI is not far away. That support will come from the horizontal line at 1730. In fact, it was the breakout above this level that had generated much excitement in the market just a few weeks back. However, if FBMKLCI were to violate the 1730 level, then the market will consolidate for a while.
Chart 2: FBMKLCI's weekly chart as at April 11, 2017 (Source: Shareinvestor.com)
For the past 4-5 months, our market was driven by buying from two sources: foreign funds and local retail players. The tentative breakdown of the intermediate uptrend line for FBMKLCI could signal a pause in the foreign buying of blue chip stocks. What about the buying from retail players?
From the composite chart below, we can see that the indices for the 2nd & 3rd liner stocks (FBM70 & FBMSCAP) as well as penny stocks (FBMACE & FBMFLG) continued to rise even as FBMKLCI had begun to lose some momentum over the past 2 weeks. In fact, FBMACE & FBMFLG picked up pace as reflected by the distance between the indices and the moving average lines.
However, volume has declined noticeably and this sign of divergence could be a warning that retail players are slowing down. If old & tired punters are not quickly replaced by new & energetic ones, a pause in the play is likely. And, a prolonged pause would bring forth a torrent of selling that could lead to a sharp drop for many penny stocks which had risen spectacularly on very little news or no news at all.
Chart 3: FBM70, FBMSCAP, FBMACE & FBMFLG's daily chart as at April 11, 2017 (Source: Shareinvestor.com)
Based on the above, I would advise retail players to exercise caution in the market. Better still, if you can take some chips off the table. Remember this: A bird in hand is better than two in the bush. Good luck!