SET Index : Volume flows suggest a rebound will fail quickly

The SET closed well on Friday after a tough week, leaving the first two candles of the 3 candle morning doji formation. Counting back a year, this pattern has appeared 10 times since February 2010, and has resulted in a rebound every time. In this case, if the trend continues, the SET should bounce to 970 or so, possibly a tad higher. However, if 963 holds firm Monday, the SET will be at risk of a failed rebound this time – a dead cat bounce – and given it will be the first time in a year a rebound formation fails to deliver, downside momentum to 920 or so may increase.

Even if the coming week results in sideways action, unless a weekly candle above 980 is posted, downside risk will remain high.

The volume trend remains firmly negative for a reversal in the SET just yet, with Friday’s net flows reinforcing the foreign selling, retail buying patterns that has been in place for several weeks now. It is of course futile to fight the flows, and we hope investors switch back and trade the TFEX, which has not really seen the growth in volume from retail traders we had hoped – after good signs of increasing interest in early 2010.

For the week ahead we are worried the rebound formation will fail this time, and will be looking to take on additional short exposure via SET 50 futures if there is some brief upside on Monday.

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