After the sharp selldown in late MAy, our FBM-KLCI rebounded above the 40-week SMA (or, almost equivalent to 200-day SMA). If the market weakened in the coming weeks, FBM-KLCI would test again the 40-week SMA line at 1261 as well as the "horizontal line" at 1240. It is critical that FBM-KLCI stay above these supports, failing which our market could enter into a downtrend. The market today is quite similar to 1st quarter 2008, where the breakdown of the 40-week SMA line & subsequently the "horizontal line" led to a sharp downtrend.


Chart 1: FBM-KLCI's week chart as at June 4, 2010 (Source: Quickcharts)

Euro index broke its horizontal support at 121 last Friday. Let's take a quick look at EUR/USD chart below. We can see that EUR/USD broke below the horizontal support at 1.25 in late May. Its immediate horizontal support is at 1.17-1.18. If we assumed that EUR/USD is in a ABC corrective waves since July 2008 and these wave patterns take the zig-zag pattern, then the target for the completion of these waves (or, final Wave C) would be about 1.17-1.18. Let's wait & see whether this will pan out. For more on Elliot Waves, go here.


Chart 2: EUR/USD's daily chart as at June 4, 2010 (Source: Yahoo Finance)

The fresh weakness in EURO is again affecting global equity markets, including our FBM-KLCI. As noted above, it is critical that FBM-KLCI should not violate the 40-week SMA line (almost equivalent to the 200-day SMA line) & "horizontal line" supports at 1261 & 1240, respectively. A breakdown of both supports could signal the start of a downtrend for our market.