Market Outlook as at October 18, 2011

In the last Market Outlook post, I have noted that the medium-term downtrend line for FBMKLCI would be tested soon. A break above that downtrend line would be positive for the market as it would signal a pause in the downtrend. How far would this rally go? The recent strength of the market surprised me as the FBMKLCI has managed to easily brushed aside the strong horizontal resistance at 1445-1450.

If the market action in 2008 can be a guide, the current rally's next stiff resistance would be at the 20 & 40-week SMA lines at 1471-1483. On weakness, it may drop back to the breakout level of the previous downtrend line at 1435. I expect the market to trade within this band- between 1435 & 1483- for the next few weeks. A breakout of the band (which has yet to be formed) would then point the way forward for the market.


Chart 1: FBMKLCI's weekly chart as at Oct 17, 2011 (Source: Quickcharts)

In late September, I have posted about the possible bear rally to come (here). I have re-drawn that weekly chart for your guidance. This chart is not inconsistent with the earlier chart, except for additional SMA lines as well as displaced SMA lines.


Chart 2: FBMKLCI's weekly chart as at Oct 17, 2011 (Source: Quickcharts)

In conclusion, those who hold a bearish view of the market should look to sell but you can afford to pace your selling. If possible, you should sell into strength at 1471-1483 (and possibly buying on dips to 1435). However, those who think otherwise, you can choose to hold & add to their position on market weakness (by buying on dips to 1435).