Market Outlook as at January 21, 2015

On October 21, I had posited that FBMKLCI had broken its uptrend line. With that, the market would turn bearish until the index has climbed back above the uptrend line. Since then, the market has been declining until the middle of December.

From the monthly Chart 1 below, we can see clearly that the long-term uptrend line- which stretches back to late 2008 - was violated in late October.


Chart 1: FBMKLCI's monthly chart as at Jan 21, 2015 (Source: ShareInvestor.com)

If we look at the weekly Chart 2, we can see that FBMKLCI peaked in June-July last year. A Head-and-Shoulder formation can be clearly drawn. In December, FBMKLCI broke the neckline of the Head-and-Shoulder formation at 1780. 


Chart 2: FBMKLCI's weekly chart as at Jan 21, 2015 (Source: ShareInvestor.com)

The presence of the Head-and-Shoulder reversal plus the breakdown of the long-term uptrend line are the reasons why I am very cautious & negative about this market. 

Interestingly, the medium-term downtrend that dates back to late November last year has formed an inverted Head-and-Shoulder formation (see daily Chart 3). If FBMKLCI can break about the neckline of that inverted head-and-Shoulder formation at 1775, the medium-term downtrend would reverse and the index could charge up to the intermediate downtrend line (that stretches back to September last year). If the index can also break above the intermediate downtrend line at 1810, we may see the continuation of the prior long-term uptrend!


Chart 3: FBMKLCI's daily chart as at Jan 21, 2015 (Source: ShareInvestor.com)

In fact, if you look at the FBMEMAS, you would see a similar inverted head-and-Shoulder formation at the end of the medium-term downtrend. Today, FBMEMAS broke above the neckline of that inverted Head-and-Shoulder formation at 12200. This means that FBMEMAS could soon test its intermediate downtrend line at 12350.


Chart 4: FBMEMAS's daily chart as at Jan 21, 2015 (Source: ShareInvestor.com)

Based on the above, we may see a rally over the next 1-2 week, which some would call the lunar new year rally. If you are nimble enough, you can try your luck and make a small new ANGPOW for the new year. However, you are advised to exercise careful discretion in all your trading as the markets everywhere are extremely volatile.

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.