Tuesday, October 16, 2018

Market Outlook as at October 15, 2018

FBMKLCI is likely to have peaked at 1896 on 16 April. I plotted 3 moving average lines to give me a bearish cross-under. The 3 moving averages are 300-day (simple) moving average (MA), 150-day exponential moving average (EMA) and 100-day weighted moving average (WMA). The bearish cross-under is satisfied when the following occurred:
1) the 100-day WMA crossed below the 150-day EMA, and both of these crossed below the 300-day MA, and
2) the index crossed below all these 3 moving averages.

The last time we saw a similar cross-under was in 2015 (see the pink arrows). The index dropped and stabilized before it dropped again. After that, it moved sideways for about a year. We may or may not see something similar.

Chart 1: FBMKLCI's daily chart as at Oct 15, 2018 (Source: Malaysiastock.biz)

The next chart is a weekly chart which includes a line that's my own "invention". It is the blue line (denoted as 'AB') which acts as a support to the market. It is not an uptrend line- unlike the tentative uptrend line (in green & denoted as 'SS'). Our FBMKLCI is now resting on this support line, AB. The last time we broke below this line decisively was during the Global Financial Crisis of 2008. Given the sharp drop in a few emerging market currencies (including our neighbor, Indonesia), it is possible, not probable, that we could be in early day of another financial crisis. The oft-mentioned 10 or 12-year cycle is another theme that is being used to forewarn about an impending market selldown. Whatever it may be, if FBMKLCI were to go below its last week low of 1682, we could see a selldown more severe than what we saw in 2015. Stay tuned...

Chart 2: FBMKLCI's weekly chart as at Oct 15, 2018 (Source: Malaysiastock.biz)

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