Market Outlook as at January 11, 2008

The KLCI broke above the slanting overhead resistance of 1450 on January 4. In a matter of 5 trading days, it has gained another 66 points to close at 1516.22 on January 11 (with the psychological 1500 level taken out on January 11). This sharp rise is quite similar to the sharp rise in October 2006, when the KLCI broke above its overhead resistance at 970 as well as surpassing the psychological 1000 mark shortly thereafter (highlighted as "A" on Chart 1 below). Will the KLCI put in a performance over the next 4 months like what it has done in November 2006 to February 2007? Only time will tell.


Chart 1: KLCI's daily chart as at January 11 (courtesy of Tradesignum.com)

We have observed that the market breadth is rather poor & participation from the second- & third-liners is only starting to pick up lately. If we compared the performance of Mesdaq & Second Board indices in October 2006, we will note that these indices only begun to move after the KLCI has gained considerable ground. In fact, a sharp spike-up in both the Mesdaq & Second Board indices seem to be a pre-cursor to a correction in the market (see Chart 2 & 3 below).


Chart 2: Second Board's daily chart as at January 11 (courtesy of Tradesignum.com)



Chart 3: Mesdaq's daily chart as at January 11 (courtesy of Tradesignum.com)

Guided by what we have seen in the period from November 2006 to February 2007, we can surmise that the KLCI may still have someway to go on the upside and the second- & third-liners may be about to participate in the current rally.