Market Outlook as at December 22, 2009

Yesterday, FBM-KLCI was knocked down by about 7 points in the last 15 minutes, to 1255.66. This set up the market for a small rebound of 4-5 points this morning, where FBM-KLCI closed at 1259.33 at the end of the morning session. However, the poor close yesterday means that the FBM-KLCI has broken below the 50-day SMA line support of 1261. This, coupled with the daily MACD sitting precariously at the zero line, is a warning that the market could be at the tipping point. See the daily chart, Chart 1 below.


Chart 1: FBM-KLCI's daily chart as at Dec 21, 2009 (Source: Tradesignum)

From the weekly chart, we can see that FBM-KLCI has been resting on the 10-week SMA line support of 1264 for the past 3 weeks. Weekly MACD, RSI and Slow Stochastic have deteriorated during this period. The market condition is quite similar to the market in July 2007, before the sharp correction set in.


Chart 2: FBM-KLCI's weekly chart as at Dec 21, 2009 (Source: Tradesignum)

One of the main factors that has been supporting the market is the perception that our market will only correct if other global markets or regional markets have begun to correct. Since other markets are relatively healthy, a correction in this market is not likely. That's only partially correct. I believe that a correction in our market will also coincide with corrections in other markets. How sure are we that other markets are doing well. Look at Shanghai's SSEC Index and Hong Kong's Hang Seng Index below.

From Chart 3, we can see that SSEC Index has corrected back to its medium-term uptrend line in the past few days. If SSEC Index were to violate its uptrend line support at 3050, the Shanghai market could go into a sharp correction.


Chart 3: SSEC's weekly chart as at Dec 21, 2009 (Source: Stockcharts.com)

Similarly, HSI has violated its 20-week SMA line at 21400 last week. This, coupled with the weekly MACD hooking down, means that the Hong Kong may have turned bearish.


Chart 4: HSI's weekly chart as at Dec 21, 2009 (Source: Stockcharts.com)

Based on the above, I would again advise everyone to be very careful in the present market. Reduce your long position in the market to a comfortable level.