Overnight, US markets dropped quite sharply. DJIA has broken below the 20 and 50-day SMA line in one swoop. The last time DJIA broke below its 50-day SMA line was in June 2008 when it came quite close to the 100-day SMA line.


Chart 1: DJIA's daily chart as at 21/1/2010 (Source: Stockcharts.com)

This morning, SSECI & HSI dropped sharply to their low of 3062 & 20250, respectively. As at 1.35 am ET, SSECI & HSI have rebounded to 3140 & 20538, respectively. As noted previously, SSECI's uptrend line support is at 3150 & it is important that it should recover back above that level. Similar, it is also important that HSI should recover above its strong horizontal support of 21000.

What may have prompted the current weaknesses in global equity markets? Other than the monetary & administrative tightening in China, I believe most financial assets are now reacting to a possible upswing in USD which could lead to the unwinding of the USD carry trade. See Chart 2 below.


Chart 2: USD's weekly chart as at 21/1/2010 (Source: Stockcharts.com)

Our market is now in a very precarious position. Our market was trying to break above the strong horizontal resistance of 1280-1330. We have seen two previous cyclical tops (1993 & 1997) that failed at this level (denoted as 'A' & 'B') as well as the April-May 2008 bear rally that failed to overcome this level (denoted as 'C'). A failure to break through this level now could led to a sharp reversal, which could be the top for the uptrend that dated back to March 2008. Indeed, the next few days could be a very critical & nerve-racking time for all investors.


Chart 3: FBM-KLCI's weekly chart as at Jan 21, 2010 (Source: Tradesignum)