Market Outlook as at December 22, 2008

The KLCI was up 11.3 to 887.7 as at 10.00 am today. It has broken above the 50-day SMA at 883 & it is poised to test the medium-term downtrend line resistance at 900-910 (see Chart 1 below). How far can this rally go? Is this just a year-end window dressing exercise?


Chart 1: KLCI's daily chart as at December 19, 2008 (source: Tradesignum.com)

From KLCI's monthly chart (Chart 2 below), we can see that the William's %R is poised to cross above its 5-month SMA. In the past 2 occasions when this happened (denoted as 'a' & 'b'), the KLCI has a strong rebound lasting 1-2 month(s). If the same happens again, then it is likely that the KLCI will have more than just a year-end window dressing exercise. The developing rally may even continue & morph into a decent Chinese New Year rally. However, we must note that there is no sign yet of a positive crossover of the monthly MACD to confirm the end of the bear market. The last 2 occasions when the monthly MACD did a positive crossover (denoted as 'A' & 'B'), the market entered into a bullish phase.


Chart 2: KLCI's monthly chart as at December 19, 2008 (source: Quickcharts)

I have also appended below the daily chart of the Shanghai Stock Exchange Composite Index, SSECI (Chart 3). We can see that SSECI has broken above its medium-term downtrend line resistance at 1950-2000 in early December. The SSECI can act as a leading indicator. It peaked in October 2007 whereas the KLCI peaked in January 2008- a good 3 months later. If the SSECI can surpass its medium-term downtrend line, there is a good chance that our KLCI can do the same.


Chart 3: SSEC Index's daily chart as at December 19, 2008 (source: Stockcharts.com)

Based on the above, I believe that one can take some trading position in the market for the next 2-3 weeks. If the present timid price run-up turn into a strong Chinese New Year rally, you will be well reward. This is especially so if the KLCI breaks above the medium-term downtrend line resistance at 900-910.