Monday, April 02, 2012

Market Outlook as at April 2, 2012

FBMKLCI gained 7.45 points to close at a new all-high of 1603.78 today. Instead of generating euphoria in the market, the new benchmark causes more head scratching. The scoreboard shows gainers outnumbering losers by an unimpressive margin of 400 to 353 & volume traded was only 1.4 billion units.

Chart 1: FBMKLCI's daily chart as at April 2, 2012 (Source: Tradesignum)

From the monthly chart, we can draw a line connecting the peaks for the past 18 years. That line could act as a resistance at 1630.

Chart 2: FBMKLCI's monthly chart as at April 2, 2012 (Source: Tradesignum) 

If we tabulated the main indices of our exchange (FBMKLCI, FBM70, FBMSCAP, FBMACE & FBMFLG), we can see widespread weakness in the market with only strength noted among the blue chips and selected second liners.

Table: Main indices on our exchange as at April 2, 2012 (Note: Figures extracted from Quickcharts)

Based on the above, I would advise caution in the market. You may want to check out this interesting article from Clusterstocks about the confusing rally in equity market since September 2011 (here). I love this quote from Nomura's Ian Scott:
Putting things bluntly, either we have another very serious credit event with consequences at least as severe as the Lehman Brothers bankruptcy, or stocks are probably a buy.
If the professionals are at a lost, where would that leave us?


Anonymous said...

Year 2012 is likely to be a structural bull market. In contrast to 2008 which was a structural bear market. A structural bear market I believe is when all the destructive things the financial crooks do (such as subprime, Lehman, Madoff, etc) collectively begin to hit the markets hard. After a structural bear market you will get structural bull market when all the goods they do to save the economies (such as QEs, euro zone rescues, etc) begin to come together to benefit the markets strongly. This is what I gather from all those confusing resports and analyses. Right or wrong, only time can tell.

Kong Hui CHONG said...

It is time to clear stock and keep more cash. Market is irrational.

emacro said...

Scoreboard shows there are skeptics out there. At the very least, the market is not oberbought?

Anonymous said...

The 2012 structural bull market is only halfway through. Still has half the way to go before it runs out of steam. That means the bull market will continue for a considerable period of time. This is what I gather after reading all the "confusing" reports. It seems to make sense after checking against technical analysis. Again right or wrong, time will tell.

Alex Lu said...

Hi zhouyu44

Thanks for sharing. I agree that the loose monetary policies implemented by central banks in developed countries will be positive for equity investment. We are still in the early days of QE & there is room for equity investment to continue performing positively. Nevertheless I expect some correction in the medium-term after the strong rally of the past 6 months.

Alex Lu said...

Hi emacro & Kong Hui CHONG

I share your concern on the market. The strong rally back to the high of 2011 on poor market breadth is quite disconcerting. It is best to take a cautious stance in the market at the moment.