Market Outlook as at July 6, 2009

This morning, the KLCI made a low of 1063 at about 10.45am. From Chart 1 below, we can see that the 20-day SMA support at 1062 has kicked in- giving the KLCI a small lift. The 20-day SMA may be tested again over the next few days. If the KLCI were to break below this support, then it may fall back on the 50-day SMA at 1031 or even the 100-day SMA at 1006.


Chart 1: KLCI's daily chart as at 6/7/2009_9.30am (Source: Quickcharts)

I believe the KLCI is now tracing out Wave C of a A-B-C Corrective Wave pattern according to Elliot Wave theory. You can go here to read more on Elliot Wave theory. Under this theory, the corrective waves may come in many forms (go here) and upon its completion, the next upleg will commence. So, if I assumed that the current correction is a simple, zig-zag A-B-C Corrective Wave pattern, I may be able to predict the termination of Wave C. For a clear picture of this pattern, see Chart2 below.

Under a simple, zig-zag A-B-C Corrective Wave pattern, Wave C is about equal to Wave A, in term of distance. Wave A is about 67 points (1095 less 1028). So, Wave C will be about 1015 (1082 less 67).


Chart 2: Simple, zig-zag Corrective Waves pattern (Source: Babypips.com)

The projected termination of Wave C is just slightly above the 20-week & 50-week SMA of about 1005-1012. On June 16 (here), I have posted that the KLCI might undergo a correction that's the opposite of what happened in April-May 2008 (which was a bear rally). To reach this depressed level, the KLCI would have to break below the 80-week SMA, presently at 1048.


Chart 3: KLCI's weekly chart as at 6/7/2009_9.30am (Source: Quickcharts)

The current deluge of negative news flow would keep the pressure on the market. This could send the KLCI lower, possibly to the 1000-1020 level. As long as the 1000 level is not violated, the long-term technical outlook would remain positive.