Market Outlook as at June 16, 2009

We have observed that the 20-day SMA has provided support to the KLCI in the event of mild correction over the past few months. I expect the same support to be forthcoming in the present correction as well. That support is at 1060-62 level.


Chart 1: KLCI's daily chart as at 16/6/2009_12.30noon (Source: Quickcharts)

A break below the 20-day SMA would mean that we are facing more than a mild correction. If this happened, the KLCI could retreat further to the psychological 1050 level or the 80-week SMA support (currently, at 1045-1047 level). If these supports were also violated, then the KLCI could even test the psychological 1000 level or the 20-week & 50-week SMA support zone (currently, around 991-1007). At this moment, I think this is the most that the KLCI may retreat to if we hold the view that the KLCI as well as most global equity markets have entered into a bullish phase, consistent with the view that the global economy is slowly recovering from the global financial crisis. I would call this "the bull retreat", which is the opposite of the bear rally of April-May 2008.


Chart 2: KLCI's weekly chart as at 16/6/2009_12.30noon (Source: Quickcharts)

At this moment, we have to watch & see whether the KLCI can hold above the 20-day SMA support of 1060. If so, this could be an opportunity to buy some stocks which have been badly sold down. Since the market looks rather extended, we should exercise caution by nibbling slowly instead of buying aggressively.