StockWatch (Apr 20-24, 2009): PSEi

PSEi (Chart: Daily Resistance: 2100/2150 Support: 1950)

The index took a dive with large volume at the start of last week. It continued on till Wed, but was able to recoup by Thurs and Friday with an equal amount of volume.

In my opinion, even if the index was able to recoup its losses on the last 2 trading days, the index is not looking very good. The correction, I believe, was again too short and shallow. The RSI is still near the overbought level and in addition, a bearish divergence has been formed with the index creating a new high, while the RSI created a lower high. I don’t see how the index would be able to sustain further upward movement with the RSI being overbought.

I would suggest that if you have any positions, sell for the moment. I believe that a bigger correction may happen any time soon given that the RSI is still near overbought and that the volume hasn’t been increasing relative to previous week’s volume. Also, I have observed that a lot of stocks are way too overbought. So prepare for wild drop.