Market Outlook as at August 20, 2009

The KLCI has rebounded today, along with other regional markets. Nevertheless, it may be too early to call an end to this round of correction, just yet. The KLCI is however expected to find support at its uptrend line at 1135 or at its 50-day SMA line of 1125. See Chart 1 below.


Chart 1: KLCI's daily chart as at Aug 20, 2009 (Source: Quickcharts)

Some stocks have dropped back to their uptrend line support. You may begin to slowly accumulate some of them, especially those that have rebounded off the uptrend line. One good example is Genting, which rebounded from its uptrend line support of RM5.90 (see Chart 2 below). Commerz is at its uptrend line support now, while PBBank & IOICorp are likely to test their uptrend line soon. These are some of the good stocks that you can look at.


Chart 2: Genting's daily chart as at Aug 20, 2009 (Source: Quickcharts)


Chart 3: Commerz's daily chart as at Aug 20, 2009 (Source: Quickcharts)


Chart 4: PBBank's daily chart as at Aug 20, 2009 (Source: Quickcharts)


Chart 4: IOICorp's daily chart as at Aug 20, 2009 (Source: Quickcharts)

While buying at the uptrend line is a reliable trend-following method for trading purposes (even for investing purpose), one must bear in mind that a break of an uptrend line normally signal increased likelihood of a change in trend. I had noted in an earlier post that the upside in the market may be limited after the recent strong rally. The contradiction between these two statements is something that we have to live with. We have to act on certain technical signal or set-up even when we feel that the market may be a bit high. A compromise may be found by way of reducing our exposure to the market while continuing to act on technical signal or set-up as given by the market.