Tuesday, September 11, 2012

FBMKLCI may test the 1600 psychological support soon

FBMKLCI broke the more gradual uptrend line that stretches back to October 2011. That uptrend line, SS support is at 1611. See Chart 1.

Chart 1: FBMKLCI's daily chart as at September 10, 2012 (Source: Quickcharts)

With the above breakdown, the index will soon test the psychological 1600 mark. A break below that level should send the index to the longer term uptrend line at 1550-1570. See Chart 2 below.

Chart 2: FBMKLCI's weekly chart as at September 10, 2012 (Source: Quickcharts)

There was an article in the Edge this week which raised the specter that the stock market has peaked. It is a brave man who dared to say that the market has peaked but braver still if he dared to say that the market will go into a sharp downturn. However, there are amber evidences that the global economy is slowing down, with many countries staring at the prospect of technical recession soon. It is a sad commentary that the prospect of a recession has given rise to a perverse hope that the central banks would act to loose up monetary policies or in some cases, engage in unconventional measures to prod up assets value. In the Eurozone, we have seen ECB announcing Outright Monetary Transaction to acquire unlimited bonds of distressed countries in order to press down the yield of bond. We will have to wait & see how much of central banks' machination would be enough to overcome market forces. Until then, our market will have to find its level.


Mat Cendana said...

Some analysts might attribute the decline to worries over the court ruling in Germany concerning its bailouts to the southern European countries. Or other factors that include the debt crisis in Europe blowing up again, whether the US would undertake QE3, or concerns over China.

All of these are valid points but I feel in BSKL's case it might be simpler - the index-linked counters had gone up to lofty levels and it's about time they undergo a correction. The plantation counters especially are rather overpriced with the lower CPO prices since the start of the second quarter not really factored in. I think this was due to people thinking that CPO price will rebound due to the El Nino effect or in line with the rise in some crops like corn. This hasn't happened yet.

I was concerned that when the quality counters do undergo a correction, the second and third liners which had not really participated in the rally would be affected too due to the general sentiments. It looks like this is happening too, which is unfortunate.

The other significant factor affecting BSKL is probably the General Elections factor. People have been forecasting this since 2009 and have gotten it wrong every time. Inevitably, it would affect market sentiments somewhat but the market would recover and go up again. But time is running short o sooner rather than later, parliament has to be dissolved and a GE called. Based on previous events, there would be a fall... and then a rise. This could be an opportunity.

As such, I feel it is more prudent to keep most of the capital on the sidelines for the time being until a clearer picture emerges.

konchy said...

Hi Alex,

May I have the link to the Edge article you were referring to?


Alex Lu said...

Hi konchy

i can't find the link to the Edge article.

Alex Lu said...

Hi Mat Cendana,

Thank you for your generous sharing. There is one point that I like to add to your observation.

Today, the stockbroking industry is as quiet as in 2004-2005. If you step inside a stockbroking firm, you will see the counter staff having very little to do. Remisiers are standing at the corridor, swapping stories or looking for new business ventures to get out of the industry.

At times like this, retailers lie low. So, 2nd & 3rd liners will not move or if they do, the play will be very selective. The players with moneys are the fund managers- local or foreign-owned. So, the stocks to buy are those with good fundamental. We are back to stock picking.

The other thing that I remember is that the GLCs did some corporate exercises. The most significant is of course the Sime Darby merger. The government also listed Bursa Malaysia. We are seeing some of that today, such as the listing of FGV & IHH. FGV maybe a non-starter as its price performance will hinge on the CPO price movement (which is sliding). IHH is the dark horse as it may take a page from Bursa's book.

Good luck in your trading.

Mat Cendana said...

Thanks for the insight about the general state of things concerning BSKL. So that explains why counters like Axiata, TM, Digi etc. have managed to sustain their gains - if we want to INVEST, then it looks like these are the kind of counters that the institutional players buy.

But one would need to have substantial capital to buy and hold counters like this. With the second and third liners, "Buy & Hold" is no longer prudent in this kind of climate and environment.

Even with those selected counters that do gain some interest among retail investors, a more prudent strategy is to adopt the "Hit & Run" strategy - when they go up a certain percentage (10% or so; maybe a bit less), often it's better to just take the profit instead of waiting for the capital to appreciate. The prices now tend to slide back, sometimes to square one or lower!

I've diversified by allocating some of the capital into call warrants the past few weeks. Pleased to say that these trades have worked. As you well know, momentum is key with warrants - I now follow "disasters" like sharp and sudden falls in counters and try to catch the rebound. Dangerous, yes, but one will have to take risks to make money. Been successful with AirAsia, FGV and JCY so I'm continuing with these warrants:-)