Market Outlook as at October 27, 2011

Our FBMKLCI is doing catch-up today and may soon test the horizontal line at 1480. I have redrawn the short-term uptrend line where the support level is at 1460.


Chart 1: FBMKLCI's daily chart as at Oct 27, 2011_12.00pm (Source: Quickcharts)

With the European nations making steady progress towards resolving the sovereign debts problem and the surprisingly positive economic data coming out from the U.S., I expect the market will continue to rise for the next few days (or even the next few weeks). Unlike 2008 when the Fed was very reluctant to step in to tackle the sub-prime problem, the European nations are forewarned that ignorance is not bliss. A blow-up in Greece would lead to contagion effect to neighboring countries (such as Italy & Spain) as well as a run on the larger German & French banks which had lent to the problematic countries. If the European debt issue is taken out of the equation, then equity market could continue to improve.

Looking at the market today & in April-May 2008 (Chart 2 below), we can see the important psychological level which could make or break this recovery. These psychological level is at 1500 level for the current market while in 2008, it was at the 1300 level. The failure to cross the 1300 level after two attempts was followed by a continuation of the bear market. Will the same happen now or will we see a different outcome? Only time will tell.


Chart 2: FBMKLCI's daily chart from June 2007-June 2008 (Source: Quickcharts)