Market Outlook as at Jan 24, 2011

Our market corrected back very sharply on Friday. FBM-KLCI closed at 1547, slightly below the psychological level of 1550 & the 20-day SMA line at 1549. I expect the bearish sentiment to continue next week & the index may test the medium-term uptrend line support cum horizontal line support at 1530. The market should hold or rebound from that support.


Chart 1: FBM-KLCI's daily chart as at Jan 21, 2011 (Source: Tradesignum)

The current bull rally is however very extended. As noted before, this bull run is running against the clock as it is 22 months old. This makes it the longest bull run in the past 18 years. In fact, if you were to look at the monthly chart below, you would see that the index normally trades within the Bollinger Band. There have been 4 occasions where the index penetrated above or below the Bollinger Band & a swift retracement ensued. These 4 occasions are marked out as A to D below. The FBM-KLCI tested the Bollinger Band earlier this month, without breaking above it. As such, a sharp retracement is not a highly probable event though one cannot rule it out completely.


Chart 2: FBM-KLCI's monthly chart as at Jan 3, 2011 (Source: Tradesignum)

One can be more confident to say that the upside of the market is quite limited. If the market can rebound from the 1530 support level (as noted above), then rotational plays could continue. Contrary to popular belief, we are more likely to be at the tail end of a bull market than at the start of a bull market. However, we have yet to see the start of the bear market & as such, we would remain in the market to take advantage of any trading opportunity that presents itself. This is a trading market but you must also be fairly swift to take profit from any trade that you have entered into. If the trade goes wrong or goes no where, you need to close off the position swiftly. Having an over-sized exposure to equity at the tail end of a bull market is not a wise thing to do. Good luck.