Market Outlook as at September 1, 2009

Last month, I expected two stock markets to succumb to profit-taking. One is Shanghai and the other is the US markets. I am quite surprised by the sharp sell-off in Shanghai yesterday which saw the SSEC index breaking below its uptrend line that marked the start of its present recovery. Unless a quick recovery happened to push SSEC index back above that uptrend line, the outlook for Shanghai has gone from cautiously bullish to neutral or even bearish.


Chart 1: SSEC's daily chart as at August 31, 2009 (Source: Stockcharts.com)

The profit-taking in US markets has been relatively mild. DJIA rebounded off its 20-day SMA on August 17. Nonetheless, DJIA is still trapped within the bugle formation. RSI, MACD & ADX are still showing signs of weakness. I believe another round of profit-taking might happen this week. Would DJIA find its support at the 20-day SMA at 9380 or at lower level, such as its 50-day SMA at 8935 or 100-day SMA at 8655? We will wait & see.


Chart 2: DJIA's daily chart as at Aug 31, 2009 (Source: Stockcharts.com)

With pronounced weaknesses in regional & global markets, I believe our KLCI will continue to drift lower. It is likely to test its uptrend line support at 1155, which is also a good horizontal support level. A break below this support would be bearish for our market.


Chart 3: KLCI's daily chart as at Aug 28, 2009 (Source: Quickcharts)

Based on the above, I believe we have to be cautious in this market.