ASI is down but there is 1 more move up

The momentum on the ASI was not impulsive at all from the start of the present wave at 6254 points. Nevertheless it crawled up to 6603, thus giving a return of 349 points. Presently there is a visible turn and the trend has a reversal to the down side. At the top of 6603 the RSI just touched the oversold region of 70 points, whilst at the end of day of Friday the 26th of August 2016, it stood at 56.50 points. What was significant now is that the MACD has given the 1st sell signal, when it cut the signal line from above, with the 1st down bar on the histogram as well. This is bearish as we know. Also the 9sma which acts like a partner of the price line got breached from the top, which is once again a short term bearish signal. PSAR too gave the 1st dot yesterday, thus showing the strong bearish signal in the ASI.
But there is an indication that the market has another 1 more move to the up once the pullback or the correction is complete. Based on the Fib retracement line drawn from the low of 6254 to the high of 6603, the 38.2% support line sits at around 6466 points, whilst the 50% support line is around 6426 points. We can expect the ASI to retrace down to these very important support level, and thereafter resume the trend extension to reach resistance between 6710 and 6752.
Going by the values of many counters we can see that there are some popular and large companies with PE's less than 6, and these are the Counters that will take the Market to the next extension.
I expect to share those counters in the next few days.

RSI is the prominent indicator/oscillator of the Colombo Stock Market

Relative Strength Index or the RSI as we usually call it, is by far the most popular indicator/oscillator in the Colombo bourse.

RSI can be useful to understand the over-bought or over-sold condition in the Market and individual Stocks. The rule is that if the RSI moves above 70 points means that the stock is becoming overbought, whilst a drop below 30 points marks an oversold condition. The other usage of the RSI is to see whether it trends in tandem with the the market. If it does trend in the same direction as the Price, then the trend appears to be strong. But if the RSI is diverting from the trend of the stock then it is an indication of a trend reversal.

In theory this might sound fantastic, but in reality it appears to be a fiction than factual. Therefore you need to master it to reap in the benefits. However it is a useful tool to understand the pulse of the market.

Misconceptions
Many traders treat overbought and oversold scenarios as immediate trend reversals. This is more a misconception than the reality. The reason why a stock move into the overbought zone is because there are more buyers as against the sellers. Buyers do not pay the same price for the stock to move up, they pay higher, as such the RSI move up. But the prices can't always go up, and at some point the buyers get exhausted, then the Sellers take over and the stock comes down to the extent of Sellers being exhausted, thus becoming oversold. For the risk savy trader, the rising or falling RSI is a great tool to follow, with tight stop losses.

Sri Lankan Market
In the Sri Lankan Market the overbought condition becomes riskier, when the RSI goes over 80 points. Conversely if the RSI falls below 20 it is riskier for the oversold condition. The difficult task is to buy just because the RSI falls below 20 points, and sell because the RSI move over 80 points. Due to this reason you need to follow the RSI together with trend lines, moving averages, support and resistance points, and waves.

RSI and 9sma Trade Setup
Buy Rule
- RSI must cut above 50 points
- Price line must close above 9sma
Sell Rule
- Sell if the RSI moves above 70 points OR
- at a predetermine Level
Stop Rule
- Cut loss at the previous support.

Commercial Bank Plc - End of consolidation, heading upwards

Commercial Bank Plc is the largest private bank, and one of the 2 foreigners held counters, other being JKH. Also one of the largest market caps in the bourse. Therefore the strength or the weakness of it is important for the overall trend of the Market.

The Counter took a huge beating, whereby the price broke down from major support areas of 140 and 130 within the last 9 months. It fell to a bottom of 115.00. The recovery from there has taken it beyond 130.00 which was a support turned resistance point and moved upto the next major resistance point of 140.00, which was tested once so far. Since then the stock consolidated with a support at 134.50.

It is now trying to hammer past the 140.00 mark, if successful we can certainly see 146 to 150 in the short term. One of the strongest support lines is the 1000sma which is now at 134.20.

Seen Com Bank moving higher will help the ASI to extend its upward journey.

ASI - Trying to breakout of a major resistance level at 6550 points

For many weeks the ASI was rising with very thin margins. From 6254 points on the 4th of July it has come upto 6522.10 at the close of today's trading. That is an increase of 268.10 points in 28 days. An average rise of 9.57 points per day. This is not an aggressive move at all. At this rate we may not see the ASI hitting above 7000 points this side of September 2016. But an up trend even with very shallow steep is positive as a strong move can happen fast as long as the trend is in tact.

200 Day Moving Average

One of the interesting things right now is the 200 day moving average which is positioning as a strong resistance along with some trend lines coming from 2015 and early 2016, confluencing around 6550 level.

6529 to 6600 has many resistance points

Helping the 200sma to support the index is the 61.8% fib retracement of the previous down trend. Therefore we can safely assume that the 6500 points area is the present support. But in order to push the bulls higher we need to see a strong rally, that we have not seen so far. Else this slow and boring trend will prevail, leading to an ugly collapse.

Weekly and Monthly Charts are very encouraging

As you may know that for many months in this blog I've been reminding the readers that we will see new highs that will erase the previous all time high levels. I have not given up hopes on that premise.
This is now getting confirmed through the weekly MACD as well. The bullish signal it gave for many weeks have been successfully held thus far.

I will be over joyed when the monthly MACD gives the buy signal. We can see the monthly bars as shortening on the histogram giving some hope of that reality.

RSI is the darling of the Sri Lankans

Technicians do not go by just one indicator or oscillator, but in Sri Lanka you could just trade with the RSI. If you had bought when the RSI was below 20 points, you could easily make money when it hit past 80 points. Even though the RSI is a handy tool to understand the positive or negative divergence of the sentiments, in the Sri Lankan context it has a little significance.

Conclusion

As the medium to long term indications are now turning out to be bullish, I expect this to happen in the short term too, hopefully at a faster speed than we see now.

Happy to see that the ASI is trending

There were 17 market days in the month of July 2016. The ASI opened the month at 6254 points and closed at 6393 points. An increase of 139 points for the month. This is a move of 8 points per day. Which is much slower than the beginning of the month when it was trending more than 20 points per day.

The trend expanded a bit aggressively today the 1st of August '16. The leaders were mostly the heavy weights in the Market such as COMB, TJL, LLUB, JKH etc. Based on the momentum we could expect the market to gather strength and push forward the bulls a while longer.

It is encouraging to see that the 1000 day moving average is positioning as a major support level at present. Although the market is in an upper trajectory we need to see more strength and activity helping this.