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Monday, June 05, 2017

Market Outlook as at June 2, 2017

FBMKLCI rebounded strongly on Friday. This raised the hope that the worst is over and recovery is on the way.

I am going to revise the trendlines that I think FBMKLCI will likely follow for the near term. Firstly, I like to move away from the 3-fan trendlines to an irregular upward channel, with upper line (RR) and lower line (SS). I have drawn the irregular upward channel (below) and you would notice that it is an expanding channel where the troughs (or, the lows) touched the lower line but the peaks (or, the highs) failed to touch the upper line after March (see the cloud formation).

This failure to reach the upper line is a warning that the market is in lofty territory & the crowd sensed it too. The players have begun to pullback whenever FBMKLCI reached 1785! Just as important, FBMKLCI broke below the lower line on the intra-day trading on Thursday. If not for last Friday, we would be in serious trouble. With FBMKLCI at 1777, we are just 8 points away from the recent highs. See the two charts below.


Chart 1: FBMKLCI daily chart as at Jun 2, 2017 (Source: Shareinvestor.com)


Chart 2: FBMKLCI 4-hour intra-day chart as at Jun 2, 2017 (Source: Shareinvestor.com)

The correction over the past 2 weeks have been very painful for fledgling stocks and stocks in the ACE Market. The good news is that both indices have found support at the intermediate uptrend lines and rebounded. There is hope that the intermediate uptrend lines will hold up these stocks at least for a while. See the next two charts.


Chart 3: FBMACE daily chart as at Jun 2, 2017 (Source: Shareinvestor.com)


Chart 4: FBMFLG daily chart as at Jun 2, 2017 (Source: Shareinvestor.com)

However the second liners and third liners are not in such a good position. Both FBM70 & FBMSCAP had broken below their intermediate uptrend lines. This means these stocks may have more room to decline.


Chart 5: FBM70daily chart as at Jun 2, 2017 (Source: Shareinvestor.com)


Chart 6: FBMSCAP daily chart as at Jun 2, 2017 (Source: Shareinvestor.com)

This week, the market will be very volatile with the possible exception of ACE Market and fledgling stocks which may continue their recovery. Blue chip stocks may start off well but have limited upside. The middle market may attempt to rally on the coattail of a blue chips rally but that rally may flatter as prices approach the violated uptrend lines. For those who were gutsy enough to buy last week, the urge to take some chips off the table will be more irresistible than ever. Good luck!

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