Wednesday, January 27, 2010

Market Outlook as at January 27, 2010

Our market did some catching up to the downside this morning, with a sharp fall of 18 points to an intra-day low of 1265 (as at 9.50 am). This compared unfavorably to other regional markets, which either went up slightly or down only marginally (except for the Australian All-Ordinaries). The main reason for the disproportionately larger fall is because of our earlier smaller decline. From the table below, we can see that most major indices had dropped to & are presently holding onto their 100-day SMA, while our market is still more than 3% away from the 100-day SMA line. If we were to follow other markets in the current selldown, then the FBM-KLCI may test its 100-day SMA line at 1244 (see Chart 1 below).


Table: Major indices closing level & their 100-day SMA as at Jan 26, 2010


Chart 1: FBM-KLCI's daily chart as at Jan 27, 2010_10.15am (Source: Quickcharts)

A closer study of the weekly chart of our FBM-KLCI will show that a failure to surpass the 1280-1330 level can lead to very sharp drops- be it a bear market or otherwise. The next strong horizontal support are at 1200 & thereafter 1150. Can it go down so much? It is hard to believe that we have to ponder such a distance shore after reaching the dizzy height of 1308 just three trading days ago.


Chart 2: FBM-KLCI's weekly chart as at 26/1/2010 (Source: Tradesignum)

If a quick recovery does not come within the next few days, I am afraid we can conclude that the bull rally of 2009 has ended. If you need a confirmation, then look out for a breakdown of the 100-day SMA line. In which case, it would be advisable to reduce our long position as prices would likely to continue to drift lower for many weeks or months ahead.
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2 comments:

  1. JYWednesday, January 27, 2010 12:46:00 PM

    Thanks for the informative analysis, Alex.

    Interestingly, in 2008, the crash for KLCI lasted for 10 months, and the 2009 rally also lasted for 10 months. (from peak to trough)

    I wonder if this correction is gonna be a short one or a long one in terms of the time frame. 7 months till World Cup finish?

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  2. solomonWednesday, January 27, 2010 12:51:00 PM

    I guess I share some of the nervousness like you.

    My observation is that some emerging market funds could be selling of late (eg, GSI exit of Stemlife)while with weak buying participation, I think the CI likely to witness the 1244 level this week.

    Chances of quite high that investors will take this so called "credit tightening" as an further excuse for sell off in coming days...

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