Tuesday, May 03, 2016

Market Outlook as at May 3, 2016

Our FBMKLCI has fallen back into its downward channel. As at 4:30pm, the index was down 20 points to 1652. Indicators point to a developing downtrend ahead as reflected by the following:
1. MACD has just crossed below the MACD signal line.
2. -DMI has crossed above +DMI; indicating downtrend ahead. The good thing is that ADX & ADXR are below the 20-mark but they are slowly creeping up.
Unless something drastic intervenes, the index is likely to continue to slide down to the psychological 1600 level and, below that, to the middle line within the downward channel at 1520-1530. We have seen a similar movement in June-August 2015 where the index tested the psychological 1700 mark before testing & unfortunately breaking below the middle line at 1660.   

Chart 1: FBMKLCI's weekly chart as at May 3, 2016 (Source: ShareInvestor)

The market selloff is partly driven by political development centered around the 1MDB debacle. If we compare our subdued political situation with the explosive political situation in Brazil, we can see the market will likely recover ahead of the resolution of the problem or crisis. In Brazil, the Bovespa has recovered substantially from the low of  37000 at the start of the year to the current level of 53000. As you know, Brazil's beleaguered President Dilma Rousseff is facing imminent impeachment.

Chart 2: BVSPs weekly chart as at May 2, 2016 (Source: ShareInvestor)

I believe we can find a peaceful solution to our 1MDB debacle without putting our institutions in straitjackets nor compromising our search for justice. When that happens, our market will recover just as Bovespa has. Until then, we need to be resolute and patient in holding onto our investment.

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