Market Outlook as at June 6th

Since my comment on May 29th (go here), the market has turned down quite sharply. The big jump in the price of petrol & diesel and the increase in the tariff rates for Tenaga would add to the inflationary pressure confronting consumers. As noted in the May 29th post, the short-term downtrend has commenced (notwithstanding the other comment about the school holiday effects on the market).

From Chart 1 below, we can see that the KLCI dropped as much as 39 points to hit an intra-day low of 1214 on Thursday (June 5th) before recovering partially to close at 1224. The recovery was given a big boost on Friday (June 6th), when Tenaga was re-quoted & rose RM1.70 to close at RM9.00. So, the supports for the KLCI are the horizontal supports at 1214-16 and the psychological support of 1200. A break of the 1200 level could see the KLCI testing its recent March lows of 1157-66.


Chart 1: KLCI's daily chart as at June 6th (source: Quickcharts)

Equity markets worldwide are facing strong headwinds from high crude oil prices & renewed fear that the credit crunch might not be over. We can see below the exponential rise in the price of crude oil is showing no sign of weakening while the Philadelphia Banking Index ('BKX') had finally broken below its strong support of 75 level, signaling another round of selldown for financial stocks.


Chart 2: BKX's daily chart as at June 6th (source: Stockcharts.com)



Chart 3: WTIC's daily chart as at June 6th (source: Stockcharts.com)

Based on the strong headwinds & the bearish outlook for the KLCI, it is advisable to stay on the sideline for a while.