Market Outlook as at August 8, 2014

The sudden drop in the market took many by surprise. From Chart 1 & 2, we can see that the drop is due primarily to weakness amongst the blue chip stocks. FBMKLCI is now very close to its uptrend line support at 1830-1835. Meanwhile FBMEmas is comfortably above its uptrend line. Despite the 30-point drop in FBMKLCI (at 2:40pm), the market uptrend is still intact.


Chart 1: FBMKLCI's weekly chart as at Aug 8, 2014_3:00pm (Source: BTX)


Chart 2: FBMEmas's weekly chart as at Aug 8, 2014_3:00pm (Source: BTX)

Yesterday, I was looking at the drop in my postings on Nexttrade. I remembered being asked by a reader whether the drop in my postings reflects my concern about the market. I explained that there were other reasons besides being hesitant to make my calls on stocks.

When I plot my postings in chart form & put it next to FBMKLCI chart, I noticed that as the market trends higher, I have a tendency to slowly pullback (by posting less). That happened in late 2007 and early 2011, when the market reached a peak before market reversed or correction set in. I noticed that it has happened again in the past few months.

I wondered how much of the decline in postings in the past few months was due to other reasons (ie. being too busy with my social activities and my other work). My observation is that I would always post when I have something interesting to share. Thus, I believe that the divergence between declining nexttrade postings & the rising index could be a warning sign, like in late 2007 & early 2011. In my opinion, the market is very toppish and we should reduce our exposure to equity.


Chart 3: FBMKLCI's weekly chart as at Aug 7, 2014 & Nexttrade Postings (Source: BTX & Nexttrade)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, FBMKLCI.