PSEi (Chart: Daily Resistance: 5000 Support: 4855/4790/4730)
Some good news and bad news happened last week. Good news is that the index is able to create a new high just 3points shy away from 5000. The bad news is that it was not able to sustain that new high and then created black candles.
The trading action last week also created a negative divergence, with the index moving higher and the RSI moving lower. It looks like we are seeing more and more of the negative divergence these past weeks.
Another signal worth observing is the black spinning top created last Friday. Spinning tops in general are signs of indecision. And as you can see, the spinning top last Friday is clearly validated by the trading action for that week where the index moved sideways. However, spinning tops found on upward trends should light up a warning signal. This means that traders previously bullish about the market are now having doubts and are pulling away from the market.
Looking at the weekly chart, we can see a stronger warning signal flashing right before our eyes: a Doji. A Doji also denotes indecision, BUT relatively stronger than a spinning top. When found on upward trends, this sometimes signals impending reversals, but of course one needs to qualify that with other signals. From the weekly charts, the Doji’s claim or warning is somehow being supported by the RSI as well, which is now beyond the overbought level of 70.
For next week, I would recommend to cease buying, hold what you have for now or better yet, start selling portions of it. We have our next support near 4855 (blue short horizontal line) which was the previous high and almost near the support line connecting the troughs from Jan 26 to Feb 16 (blue diagonal line). If the index moves lower than that support line, that should also serve as a signal to start disposing you positions as we may be seeing the index move lower towards near 4730. 4730 is the previous resistance turned support line connecting the peaks from Feb 6 to Feb 16 (orange diagonal line). If 4730 holds, then I believe that this would be a good time to get in the market again.
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