Market Outlook as at August 12, 2011

The action in our market & many Asian markets yesterday was very encouraging. Despite the sharp drop in U.S. & Europe on August 10, we did not even test the low recorded on August 9 (see Chart 1). Overnight, the U.S. & European markets recovered. I can only smile when I read that another 4 European stock markets imposed restriction on shortselling yesterday- following similar move by the exchange in Greece & Turkey (here). Look like they are following in the footsteps of Malaysia- 14 years later. The European financial turmoil is far from over and may spring more nasty surprises later.

From yesterday's market action we can see that our market has found a temporary bottom. We could see a decent rebound next. How strong is this rebound is the big question. Would it be the continuation of the prior uptrend [akin to the rally in second half 2007] or a decent bear rally [similar to the move in first quarter 2008]. The rallies in 2008 are denoted as 'A'' and 'B' respectively on Chart 2.

Finally, if you look at the monthly chart, you will see that the MACD & RSI indicators have both crossed downward, which signaled a top. See Chart 3.

Based on the above, I believe we are likely to see a decent bear rally (probably tradable). We must bear in mind that this action is likely to a corrective move with a market that has made a top.


Chart 1: FBM-KLCI's 60-min chart as at Aug 11, 2011 (Source: Quickcharts)



Chart 2: FBM-KLCI's weekly chart as at Aug 11, 2011 (Source: Quickcharts)



Chart 3: FBM-KLCI's monthly chart as at Aug 11, 2011 (Source: Quickcharts)