RSI and Stochs on the KLCI are signalling oversold. However, a few charts on my watchlist are flashing breakouts (I’m sure that yours are too.) Heck. It looks like we are getting some liquidity flow from defensive stocks into some of the better quality small caps. Is this a sign that things are improving? Or is this a rally into exended distribution?
Well here’s my take: Oversold technicals are more likely to trigger breakouts on lagging shares which attempt to catch up with the rest of the pack as investors come off the fence and join the party. A lot of money can be made spotting these late movers. But, if you’re in this market for the long haul, it always pays to err on the side of the oversold technical because the chances of a correction are greater than a follow through, and the broader market move might just sink your single stock. Remember that bears attack when you least expect it!
Breakout:
But look at the bigger picture before you take the plunge:
Verdict: This looks more like distribution in action to me.
A more convincing breakout to have played would have been the one I spotted on 25-07-06 here when the environment was more positive.
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