The 2009 Bull Market is sighted

The question that was raised many times over the past few weeks is whether this current market rally is a bear market rally or is it the start of a bull market? I can now give a firmer answer- backed by chart- that this rally is very likely to be a bull market in the same mold as 1998-2000 bull market. Since the month of April is now behind us, the monthly MACD indicator has now been fixed & it's a positive crossover; thus confirming that the market has bottomed in March & the recovery has just begun.


Chart 1: KLCI's monthly chart as at 4/5/2009 (Source: Quickcharts)

In the past 2 or 3 weeks, I have been making the case for a more meaningful correction, but none has occurred. In fact, a common question that cropped up every time remisiers gathered around the water cooler is "When will the correction take place?" This has now been replaced by wishes or pleadings for some price retreats as many have yet to gain any significant position in the market. Even sinister cloud, blown in by the Swine Flu outbreak, failed to break the momentum of the market. As we examine the bull market of 1998-2000 later, we would see that this earlier bull market did not have any sharp correction during its first 4 months of rallying off the low. Since our present rally is only 2 months old, there is a good chance that the market may climb further before the onset of meaningful correction.

In Chart 1 above, I have overlaid the Fibonacci retracement ratio for your guidance. You would see that the KLCI has up to yesterday retraced 29% of the ground ceded in the preceding bear market (from its high of 1524 to its low of 801). When compared to the 35% retracement achieved under the 1st phase of the 1998-2000 bull market, the upside of the present rally may be limited.

Let's examine the bear market of 1996-98 & the ensuing bull market of 1998-2000 (see Chart 2 below). Back then, the KLCI dropped from its high of 1278 in March 1997 (denoted as 'H') to a low of 261 in September 1998 (denoted as 'L'), before the recovery to a high of 1021 in February 2000 (denoted as 'H1'). This means that the 1998-2000 bull market managed to retrace 75% of its lost ground. Imagine how high the current developing bull market will go if it can regain 75% of its lost ground. The answer would be 1343!

I have tabulated the 3 phases of the bull market of 1998-2000 below:



Chart 2: KLCI's daily chart from end 1996 to early 2000 (Source: Quickcharts)

Finally, you would notice that throughout the 1998-2000 bull market, the 20-day SMA had acted as a support for all minor market corrections. Only when the KLCI broke below the 20-day SMA, would the correction or price consolidation be extended. You may like to try using any pullback towards the 20-day SMA as a trigger for buying into the market, until this support failed. Presently, the 20-day SMA for the KLCI is about 960. Good luck.