Market may hit 1200-1220 before correcting

After studying the CI closely, I think that the CI may put in a repeat performance for the next 2 or 3 weeks (marked as 'B') which may mirror its outstanding performance in the second half of November 2006 & first week of December 2006 (marked as 'A').

In the earlier period, the CI gained 90 points from 1020 to 1110. If the CI can duplicate this gain in the current rally, it may rise to 1220 (i.e. 1130 plus 90 points). The time taken to travel that distance in the earlier period was 12 to 15 days. If the same time is needed in the current rally, the CI may peak in the second week of February.

The start of the earlier rally was a kink in the lower Bollinger Band (marked by a red arrow). This was also witnessed in the current rally set-up. The other pre-requisites are the MACD must have hooked up earlier and the volume must be on a steady rise. The overbought RSI should not be too worrying & may stay overbought throughout the rally period. See the area marked out as A1 & B1.

The rally would have ended if the MACD has hooked down; the upper Bollinger Band has flattened out & then hooked down; and, the RSI has dropped below 70. But, these are all lagging indicators. For "leading indicators", you need to look out for signs of overheatedness such as the CI testing the upper Bollinger Band (& pulling back on a few occassions) & an unsustainable surge in volume traded. If these "leading indicators" are present, you may want to reduce your position steadily ahead of the correction.

The foregoing technical forecast is only useful as a rough guide. We must always accept the undisputed rule that the market seldom repeats itself. But, if it does, you should be ready to pound on it.



Chart: CI's daily chart as at Jan 22