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.