Market Outlook as at June 25, 2009

The recent correction had brought the KLCI to an intra-day low of 1028 on June 23rd. This is quite close to the level that I have predicted as the objective of an overbought correction in a fairly extended market. In the light of the current strong recovery, we must be wondering whether the worst is over?

To answer that question, let's look at the extremely bullish market from November 2006 to February 2007, which was at the early part of the bull run that started in October 2006 & terminated in January 2008. After the bullish breakout of a rising wedge (aka bearish wedge) at the 985 level in October 2006, the KLCI rallied strongly until it made an intra-day high of 1110 on December 11, 2008. 3 days of correction brought the market down to an intra-day low of 1069 before rebounding to an intra-day high of 1092 on December 18. A sharp 1-day sell-down followed which sent the KLCI to an intra-day low of 1050- before the bull run continued all the way to the January 2008 high of 1524.

Let's look at our recent correction. After an intra-day high of 1095 on June 16, the correction set in. Without any decent rebound in between, it swept the KLCI down to an intra-day low of 1028 on June 23 (exactly 6 days after the correction started).

The 6 days of correction in December 2006 was a great buying opportunity and the recent one may turn out to be the same. Will there be another down-leg? I think it is quite likely there will be sharp pullbacks, though I think the KLCI may not break below the recent low of 1028. Even if it come to that level or surpass that level marginally (say, 10-20 points), I think that one should use the opportunity to accumulate the stocks for long-term investment.


Chart 1: KLCI's daily chart in Dec 2006 & Jun 2009 (Source: Tradesignum)

After scanning through the charts of all the major markets, I observed that the European & the US markets are now below their respective 50-day SMA. Except for Taiwan, Korea & Australia, most of the Asian markets are above the 50-day SMA. Our market is above its 50-day SMA as well as the 20-day SMA after today's rally. The out-performance of the Asian markets will give the bulls & the bears something to chew on; the bulls will view the glass as half-full (i.e. the Asian markets will continue to out-perform the markets of the advanced economies) while the bears will see the glass as half-empty (with more room for these markets to decline).


Chart 2: HSI & STI's daily chart as at 24/6/2009 (Source: Stockcharts.com)


Chart 3: TWII & BSE's daily chart as at 24/6/2009 (Source: Stockcharts.com)


Chart 4: AORD & KOSPI's daily chart as at 24/6/2009 (Source: Stockcharts.com)


Chart 5: DAX & DJIA's daily chart as at 24/6/2009 (Source: Stockcharts.com)


Chart 6: FTSE & CAC's daily chart as at 24/6/2009 (Source: Stockcharts.com)

As at 3.10 pm, the KLCI was up 16.4 points to 1074.3, on relatively thin volume of 1 billion. Gainers outnumbering losers by 458 to 137. I feel that this rebound off the low is overdone & could easily be followed by a sharp pullback. Traders may do well to take some profit in this environment.