Wednesday, September 05, 2012

Market Outlook as at September 5, 2012

Our FBMKLCI suddenly dropped by 11 points to close at 1644 in the morning session. Losers outnumbering gainers by 560 to 105. Volume traded was high at about 740 million (for the first session only).

Many investors & some remisiers were surprised by the sharp fall. They shouldn't be surprised at all because the market sentiment has been very cautious, with consistent poor market breadth for the past few weeks. I like the term Louise Yamada of Louise Yamada Technical Research Advisors, LLC coined to describe the rally in the market for the past few months- a vacuum rally. She further added that this rally is characterized by short-covering, low volume, and deteriorating new highs vs. new lows. Louise is speaking about the US markets but she could well be speaking for many equity markets worldwide. 

Our Malaysia market has been trading in very tight range for many weeks, with volatility noted only among the blue chips MNC consumer stocks, such as Nestle, BAT, Carlsbg, GAB & DLady. The current sharp drop in many stocks could lead to a correction lasting a few days, possibly a few weeks, which could send FBMKLCI to its uptrend line support at 1630. A break below that support could send the index to the strong horizontal support at 1600.

Chart 1: FBMKLCI's daily chart as at Sept 5, 2012_12.30pm (Source: Stockcharts)

Many of the indices of major equity markets have tested their downtrend line but failed to break above it. The failure to surpass a resistance would normally lead to some correction in the market, as investors take some money off the table. The only major markets that are not constrained by downtrend line are the US markets. Even so, we can see that DJIA failed to break above its recent high at 13300. This too will result in some correction in that market.

Chart 2: DJIA's weekly chart as at Sept 4, 2012 (Source: Stockcharts)

Chart 3: DAX's weekly chart as at Sept 4, 2012 (Source: Stockcharts)

Chart 4: CAC's weekly chart as at Sept 4, 2012 (Source: Stockcharts)

Chart 5: FTSE's weekly chart as at Sept 4, 2012 (Source: Stockcharts)

Chart 6: HSI's weekly chart as at Sept 4, 2012 (Source: Stockcharts)

Chart 7: STI's weekly chart as at Sept 4, 2012 (Source: Stockcharts)

Based on the above, we can expect more weakness in the market for the near term. It is prudent not to rush into the market too early as the sharp fall could be the start of corrective move that may last for a few weeks. Better sit on the sideline and see whether strong support - such as the uptrend line support at 1630 or the strong horizontal support at 1600 - can hold.


luckystock2 said...

Hi Alex ,
Can you comment on Naim's technical outlook ?

Alex Lu said...

Hi luckystock2

Naim has broken above its downtrend line at RM1.75 in Mid-July. It has formed a very gradual uptrend line, with support at RM1.85. That could be a good level to get into that stock.

Please check out the recent financial results before getting into the stock.

Anonymous said...

hi alex.i am a little worried about this suddant sharp drop.if 2moro is red again then i get off the train.

Mat Cendana said...

That's true, it shouldn't be a surprise. We had discussed here about the `rally' being almost exclusively being dominated by the index-linked counters where the broader market was going sideways although some second and third-liners did make significant gains. Like TH Heavy, Scomi etc. But when the correction finally happened, we are surprised nonetheless. Perhaps we had been led into a lull with the daily "new records" of BSKL?

Now there the talk of the general elections has come up... yet again. The situation will create opportunities to pick up some quality stocks - the likes of Axiata, Digi, Mudajaya etc. which are in the below-RM10 category. As always, the timing will be crucial. "Cheap" often become cheaper. Hope you will alert us to the opportunities based on the technical charts, Alex.

Unknown said...

hi Alex,
can you also comment on Kimlun technical outlook? what is the good level to enter?


kangmingw said...

Hi Alex,
Can you comment on PPB & Aji?
Thanks & Appreciate.

Alex Lu said...

Hi kenny

PPB reminds me of IOI in 2008 when it broke its long-term uptrend line. PPB has just broken that uptrend line that stretches back to early 2001. It has also broken its 40-week EMA line at RM15.23.

Aji has risen from its 1-year low at RM3.50 to its recent high at RM4.70. Meanwhile its bottom-line has been sliding on the back of rising revenue for the past 3 years. Like many MNC consumer stocks, AJI has been rising on a theme play. Has that theme play ended? I am not sure but I do not like any rally without decent volume. When the buying dries up, the selling will begin. The fall will be as swift as the rise.

Alex Lu said...

Hi Unknown

Kimlun is at the strong horizontal support of RM1.35-1.40. The stock should hold at this level. If not, the next support would be the horizontal support at RM1.10.

This company will benefit from the start of the MRT project as well as its diversification into property development.

At a PE of 7 times, it is quite fairly priced. Potential upside is about 10-20% over next 6 months.

Anonymous said...

hi alex- is aji with 11 cts and 9 cents special divident ex on 12.9.12 a divident trap? 2day at 458.was expecting bonus.shall i wait a little longer?