Market Outlook as at September 30, 2011

Our market has shown some strength in the past two days when it withstood early morning sell-off. During that tense period, FBMKLCI was range-bound between 1358 & 1375. Yesterday, it broke above the 1375 level and closed at 1388. This means that the market closed the gap which appeared on September 23. Our market continued to rally this morning & successfully challenge the psychological 1400 level. As you can see, it went to an intra-day high of 1403- a mere 2 points shy off the horizontal resistance at 1405. At the time of writing this post, the index has pulled back below the 1400 level. I believe the market could correct further, possibly to close the gap which appeared this morning at the 1388 level. If the index can stay above this level, we may see another rally to test the psychological 1400 level.

There are however some reports which argue that the current rally in many stock markets is driven by short-covering activities. One reputable website, Bespokeinvest thinks otherwise. It feels that there is a randomness to what's rallying & there is no evidence that highly-shorted stocks are seeing the biggest gains (here). If this is true, the current rally could fizzle out next week. Only time will tell whether you should sell into the rally or hold out for higher prices.


Chart: FBMKLCI's 15-min chart as at September 30, 2011_10.30am (Source: Quickcharts)