Market Outlook as at January 24, 2008

After the much-anticipated announcement of a 75-basis point cut in interest rate by the Fed, the global equity markets have rebounded. It will be a while before we will know whether this is enough to prevent a recession in the US, but for now, many believe that we might have seen a trading bottom. If this was a trading bottom, how high can this rebound go?

From the chart below, we can see that the immediate resistance at 1384, 1420 & 1450. The psychological 1400 level will naturally act as a resistance.


Chart: KLCI's daily chart as at January 22 (courtesy of Quickcharts)

While I anticipate a big rush to buy, I believe that we should not throw caution to the wind. Most stocks are likely to recoup 20-30% of their recent losses and if one can buy them relatively cheap, one might enjoy some trading profit. Nevertheless, the technical picture might have turned bearish for many major markets & this rebound could be a correction (i.e. an oversold rally) within a bear market.

Despite maintaining my bearish stance, I will withdraw my last remark in my previous Market Outlook where I implied that one should avoid buying in the market. That comment was made due to the extremely bearish outlook & my concern that a massive selling stampede was imminent. With some stability returning to the market, investors shall exercise their own discretion in their own trading or investment strategy.

Good luck.