What's up with Mesdaq?

Mesdaq has recovered almost all its losses since the May and June turmoil. During that peiod, Mesdaq dropped from a high of 128.40 on May 11 to a low of 104.04 on June 15. Since the low, Mesdaq has been going up & yesterday it gained 2.47 points to close at 126.68; just 1.72 points shy of its May high (see Chart 1). Yesterday's market action in the Mesdaq was particularly strong, with gainers leading losers 73 to 11. Volume of shares traded was very high at 363.6 million units.

















Chart 1: Mesdaq's weekly chart as at June 11

If Mesdaq can can break through the 128-130 levels, it would be poised to test the 140-141 levels (see Chart 2). The latter is the downtrend line resistance for the Mesdaq since its inception in March 2002. A break above the 140-141 levels would be very bullish for Mesdaq. Some analysts are already preparing for that day and are hoping that the Mesdaq would do for the Malaysian stock market in 2006 what the Second Board did in 1996.

















Chart 2: Mesdaq's monthly chart as at June 11

How to participate in the Mesdaq play?

My feeling is that the first attempt at the 128-130 levels, which may happen in the next 2 or 3 days, is unlikely to succeed. Why do I think so? I believe that Mesdaq's current rally at the present pace is unsustainable. The 128-130 levels would be a good point for Mesdaq to take a pause. The Mesdaq may pullback to the 120 horizontal support level or even to the 110 uptrend line support before re-testing the 128-130 levels later (see Chart 3).

















Chart 3: Mesdaq's daily chart as at June 11

The really tricky situation would be if the Mesdaq break above 128-130 levels. Should we buy into the breakout or should we wait to see whether it is bull trap? That's the tough call and we shall cross it when we come to it. At this point, my recommendation is to sell into the 128-130 levels until a breakout happens.