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Tuesday, May 16, 2017

Market Outlook as at May 16, 2017


Two weeks ago I posted my market outlook which is likely to be "a decelerated uptrend market based on 3-fan uptrend lines". (here). One of the rules for the use of a 3-fan uptrend lines is that "(t)he violated uptrend line shall act as a resistance capping subsequent price rise".

Looking at the daily chart, we can see that FBMKLCI imay soon test the resistance from the violated uptrend line, S-S2 at 1795-1800. For example, it went to an intra-day high of 1787 this morning before correction set in. Where can FBMKLCI go in the near term?  


Chart: FBMKLCI's daily chart as at May 16, 2017_11.00 (Source: Shareinvestor.com)

If FBMKLCI can surpass the resistance of 1795-1800, it means that the sustainable uptrend line of S-S2 has prevailed. In that scenario, the market uptrend will be strong and outlook will be bullish.

The alternative scenario is that the test of the resistance at 1795-1800 will not succeed and the market will pullback. That's a neutral scenario of a market correction (a short-term negative) within an uptrend market (medium-term positive). I feel this is the more likely scenario. To work with this scenario, you should sell into strength for the next few days. I am talking about a partial profit-taking and not total sell-out.

In the medium-term (over 2-4 weeks time frame), we shall watch out for FBMKLCI staying above the uptrend line, S-S3 (currently at 1755). A breakdown of this uptrend line will be decidedly bearish for the market because "violation of S-S3.... would mean the end of the uptrend. There will not be another uptrend line, S-S4".

Good luck!

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