Beware Of The Bearish Rising Wedge ?

Last Friday, the KL Composite Index did very well. Closing with a gain of +16.69 points to close at 896.64 points. With this huge gains the KL Composite Index has clear further away from the critical point of breaking the current uptrend line.

On the surface, the KL Composite Index's rally off its Oct 24 2008 low appears to have been quite strong. But its technical underpinnings are disturbingly weak. In fact, according to the charts reading, a technical approach was used and become concerned regarding an incipient wedge formation in the daily chart of the KL Composite Index.

And as any technical analyst will tell you, a RISING WEDGE is BEARISH. A Continuation Wedge (Bearish) is considered a bearish signal, indicating that the current downtrend may continue. A Continuation Wedge (Bearish) consists of two converging trend lines.

The trend lines are slanted upward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted upwards at an angle.

This is because prices edge steadily higher in a converging pattern (i.e. there are higher highs and higher lows). A bearish signal occurs when prices break below the lower trendline. Over the weeks or months that this pattern forms the trend appears upwards but the long-term range is still downward.

Although the formation of Rising Wedge is in the proses, still the KL Composite Index might have a possibility for a short term move. We cannot consider the index is in a bearish territory at this moment, it is just that we need to beware about this formation. Whether this formation would suggest my previous articles (Where Would The World Financial Crisis Heading To ?), we still need to monitor the reaction of the world financial market.