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Thursday, July 10, 2014

Market Outlook: Who is calling the shots?

Over the past 1 year, the market action was not centered on the blue chip stocks nor the near blue chip stocks. This is clearly shown by the sideways movement in FBMKLCI (representing the Top 30 stocks) and the FBMMID70 (representing the next tier).


Chart 1: FBMKLCI's weekly chart as at July 9, 2014 (Source: Kentrade)


Chart 2: FBMMID70's weekly chart as at July 9, 2014 (Source: Kentrade)

The play was all in the 2nd & 3rd liners (represented by FBMSCAP); the fledgling stocks (FBMFLG) and the ACE Market stocks (FBMACE).

Of these 3 indices, the weakest group of stocks appears to be the stocks from the ACE Market. FBMACE was in a sideways movement for 4 years up to July 2013, when it finally broke above the horizontal line at 4800. Thereafter, FBMACE has been rising in an uptrend line, with support at 6500-6600. It is testing that support now.

We can see that there is a bearish divergence between FBMACE index and its RSI indicator. In addition, the Williams %R has broken below its uptrend line. Will FBMACE be the canary in the coal mine? Let's watch closely the ongoing test of the uptrend line support by FBMACE. If it breaks below 6500-6600, it could lead to further & sharper correction in the 2nd & 3rd liners across the whole market.  


Chart 3: FBMACE's weekly chart as at July 9, 2014 (Source: Kentrade)


Chart 4: FBMFLG's weekly chart as at July 9, 2014 (Source: Kentrade)


Chart 5: FBMSCAP's weekly chart as at July 9, 2014 (Source: Kentrade)

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