Market Outlook as at June 19, 2009

As at 11.00 am, the KLCI is up 2.81 to 1057.22. Out of a total listing of 1227 issues, only 651 were traded. Gainers outnumbered losers 312 to 142, with 197 stocks traded unchanged. Volume traded was 457 million units.

The KLCI may enjoy a rebound from the 20-day SMA line. However, I believe this rebound is likely to be weak & the market may succumb to fresh selling pressure. Looking at the daily chart below, we can make the following observations:

1) MACD, which has done a bearish cross-under a while back, could enter into the negative territory shortly if the recovery does not happen soon. The entry of the MACD into the negative territory would merely confirm the start of a longer & deeper price consolidation*.
2) Willams %R has just broken below its support (near the 50 level). In the past, this would be followed by a price consolidation lasting 2-4 weeks.
3) +DMI for the past 3 months was never euphoric, unlike the -DMI for the period from July to October 2008 which displayed clear sign of panic. However, the ADX for both periods were elevated; thus confirming the underlying strength of the trend. The absence of euphoria in the uptrend for the past 3 months does raise some doubts as to the return of the animal spirit that is so needed to drive the market higher. This is something worth pondering about...

Chart: KLCI's daily chart as at 18/6/2009# (Source: Quickcharts)

While prices are presently much lower than what they were a few days ago, to trade in the market is no easy feat. One has to be nimble & quick to take profits offered or accept any losses suffered. Protective stop is a must.

For those looking to buy for longer term, you may do so slowly now. Deploying 20-25% of the intended sum at this juncture may not be such a bad idea as one can never be too sure where market is headed next. It is certainly a better idea than doing so last week!

Note:

(a) I have appended a link (here) to a very good series of articles on Technical Analysis written by Chip Anderson in Stockcharts.com*. Part 8 of that series dealt with minor downtrend & intermediate downtrend, which could aptly describe the possible price consolidation in our market.
(b) There is a slight error# in the presentation of yesterday data in the chart above. I do not believe that this minor error will significantly alter the reading of the chart.