Market Outlook as at Feb 16, 2007

The market performance for the past 1 week has been very bullish. Its bullishness has even surpassed my personal bullishness on the market. Contrary to my expectation, the market has not had any serious correction since December last year. Corrections were short & shallow. This strong run-up may have finally convinced many skeptics that the current bull run is indeed a super bull run.

Current Market Outlook

From Chart 1 below, we can see that the CI is supported by its immediate short-term uptrend line, with support at the 1240. The next uptrend line support is at 1195/1200.



Chart 1: CI’s daily chart as at Feb 16 (overlaid with uptrend lines, SMAs & Bollinger Band)

From Chart 2 below, we can see that the CI is well-supported by the 8-day SMA. The current 8-day SMA support will be at 1245.



Chart 2: CI’s daily chart as at Feb 16 (overlaid with SMAs)

Comparison with 1993 bull run

We can study the 1993 bull run to seek some insights into the current bull run. The 1993 bull run started in April 1993, after a breakout above the 680 level, and ran for a period of 8 & 1/2 months until it peaked in the 1st week of January 1994 (see Chart 3 below). During that period, there were 2 consolidation phases i.e. in June & July 1993 & November 1993. The consolidation phases were noted for 2 things i.e. the CI dropped below the 30-day SMA & the contraction in volume of shares traded.



Chart 3: CI’s daily chart from 1st March 1993 to 1st February 1994

A closer look at the period from 1st March 1993 to 1st October 1993 may be useful as it is fairly similar the present stage of the current bull market. The current bull run encountered its 1st consolidation phase in December last year while the 1993 bull run encountered its 1st consolidation phase in June & July 1993. Since that 1st consolidation phase in June & July 1993, the 1993 bull run went up for another 3 months before encountering the 2nd consolidation phase in November 1993. If the same strong run-up repeats itself in the current bull run, we can expect the next consolidation to occur only in early April (i.e. another 1 month to go). In the stock market, nothing is ever smooth sailing. Even in the 1993 bull run, in between the 2 consolidation phases, there was a very nasty correction in the month of September 1993. So, even in the current bull market, we can expect some sharp corrections now & then.



Chart 4: CI’s daily chart from 1st March 1993 to 1st October 1993

Conclusion

In a bull run, the risk is on the upside. We should buy on market weakness. Selling should only be carried out after a share has hit its pre-determined target or a sell signal has been issued based on technical consideration.