Notwithstanding the above comment, I believe that the market could stage a strong rebound from the low recorded on October 28th. That's based on my observation of the steady improvement in the credit market as well as some stability returning to the currency market. While we are not out the wood yet, the stock market should rally after the sharp fall of the past 3-6 months (see Chart 1 below).
To get an indication of how much of a rebound we can expect as well as how treacherous the market may be in the days & weeks ahead, let's look at our stock market during the Asian Financial Crisis in 1998 (see Chart 2 below). The present drop in our market since May this year may have traveled in the same route taken by the market in the earlier period, from June 1997 to October/November 1997. In the earlier period, our stock market rebounded back to its 50-day SMA on a few occasions, while our present market has not only failed to rebound up to its 50-day SMA since May, it has totally failed to put in any decent rebound. With improvement in credit & currency markets & a deeply oversold stock market (akin to a tightly-wound up spring), I believe that the stock market is ripe for a strong rebound. It is likely that our market may rally up to the 50-day SMA, but I believe that the 50-day SMA will also cap the rise in this strong rally in our present market. The 50-day SMA for KLCI is presently at the 1000 mark. Since the KLCI closed at 853.6 yesterday, this means that our KLCI may potentially have an upside of about 17%.
Chart 1: KLCI's daily chart as at October 29, 2008 (source: Tradesignum.com)
Chart 2: KLCI's daily chart from January 30th, 1996 to January 30th, 1999 (source: Tradesignum.com)
In conclusion, I believe that we should take some position in the market presently. While we may not be buying near the bottom, we will be buying at deeply-depressed prices that would lower our potential downside risk & increase our potential upside return. Good luck.
Hi Alex,
ReplyDeleteI believe we had passed the bottom of the market. Judging technically from the ADX reversal. As you know, ADX is the trend indicator. Most world market ADX are rebounding. I bet you'll check on that later. Happy Trading.
Hi ijanmaster,
ReplyDeleteYou have made an interesting point. I seldom used directional movement index for technical analysis. It is one of the more complex indicators out there, and I tend to forget how to use it. I have read it many times- the most recent reading was only last week. After that reading, I used Tradesignum to check on the strength of the current downtrend to gauge where the market is heading. In Tradesignum, this indicator is called 'Average Directional Index'. My reading, even now, is that the current downtrend is still intact. Hopefully this will change soon...
A good link for more information on this indicator is http://www.investopedia.com/articles/technical/02/050602.asp
how about comparing the length of the bear.
ReplyDeleteIt does appear to me that 97 takes around 1.5 years to complete the bear (with minimal rebound).
Right now, we are like 8 months into the bear and behold, we dont see much rebound either this time..
Hi hhc1977,
ReplyDeleteI agree that the current bear market can still go on a while longer, if one were to assume that the current Global Financial Crisis is worse than the Asian Financial Crisis 1998. During the Asian crisis, the bear phase of the stock market lasted about 18-19 months. If the same were to happen today, then this bear market may stretch to middle of next year.
See my post dated September 11, 2008- http://nexttrade.blogspot.com/2008/09/how-much-longer-farther-can-this-bear.html