Since the FBMSCAP & FBMFLG gave the early warning of a possible topping-out in week-ending July 8, 2011, I have asked my clients to take profit on their investment. When the FBMKLCI & FBMEMAS gave the sell signal in week-ending August 19, 2011, I have asked my clients to further reduce their position in the market. See my earlier column dated September 7, 2011.
After the end of August, the monthly chart confirmed that that the market had indeed peaked and a new bear market has arrived. I held onto the possibility that the market might have a bear rally after dropping more than 100 points from the peak in a matter of a few weeks. Alas, that hope looks like a dim prospect with each passing day. The market has broken below the triangle ABC at 1445 on September 14. It has also surpassed the recent low of 1423. Having tested a horizontal line at 1405 on September 20, the index is now rebounding. See the daily chart below.
Chart 1: FBMKLCI's daily chart as at September 20, 2011 (Source: Quickcharts)
On the weekly chart, the recent breakdown of the 80-week MA line is very similar to the breakdown of the 40-week MA line in March 2008. If buying support does not come quickly, our index would soon re-test the horizontal support at 1405 & then the psychological 1400 level. If these two supports were to be violated, the market could see a bout of panic selling as experienced in 2007 as well as in the first two weeks of March 2008 (indicated by the arrows). Below 1400 level, the index may enjoy support at the horizontal line at 1350 & possibly 1300. See the weekly chart below.
Chart 2: FBMKLCI's weekly chart as at September 20, 2011 (Source: Quickcharts)
The situation in Europe is looking more precariously with each passing day. A few days ago, S&P downgraded Italy debt to A/A-1 with a negative outlook. The market is factoring in a Greek default, happening in a matter of weeks. European leaders are busy drawing up plans to prevent contagion, preserving the Euro & stabilizing the banking system. U.S. Federal Reserves are also busy putting the finishing touches to a new Quantitative Easing plan. With the fiscal constraints placed by a Republican-controlled House of Representative, the Obama administration would not be able to increase public spending sufficiently to make up for the expected drop in private consumption & investment. In this scenario, the economic resources would be under-utilized. This could only mean that the unemployment situation in America will remain weak, if not worsen.
I have been asked whether it is safe to venture into the market after the decline in the past few weeks. If you looked at the monthly chart in last week column, you would see that a sell signal- once flagged- will be valid for a few months. To me, a bear market can be divided into 3 phases:
1) the initial decline, where the bears & the bulls would still argue about the direction of the market. This would give way to the next stage after the last bulls have thrown in their towel. This normally happened after a failed rebound, which would be called a bear rally later.
2) the selling-down stage, where the decline will fast & furious as the rampaging bears would hunt down the remaining bulls.
3) the bottoming phase, where the bears would be walking around with their heads down and bulls would hardly look like bulls.
The opposite of the bear market- the bull market- will see the mirror image of the above, which will be the initial recovery; the buying-up stage; and finally the topping phase. We are probably coming towards the end of the initial decline (for I am still holding out for a bear rally). If you look at the weekly chart, I have classified the different phases that our market has gone through over the past 5-6 years.
When is a good time to buy? Many think that bottoming phase is the safest time to buy. If you are buying a lot of shares, you have to buy during the bottoming phase. This applies to fund managers who buy in the millions. For retailers, the most effective time to buy may not be the bottoming phase. This is because one can never know when the market is in a bottoming phase. If a new low is made, the earlier-thought-to-be bottoming phase would turn into a continuing pattern as investors await another bottoming phase. To be sure, the most cost-effective time to buy is the initial recovery phase. Yes, you would be buying at slightly higher prices but you would have greater confidence in your game plan & less psychological hang-over. We must however bear in mind that individual stocks would bottom out & recover at different stages. And, we are very far from the recovery stage at this point of time. Meanwhile, keep your powder dry.
(This is my latest article in Merdeka Review. For the Chinese version, go here)
Good write up! Appreciate your view.
ReplyDeleteHowever, should not discount effect of GLC. Alex, what do you think? I personally feel GLC counter will fly before November (which is the expected month).
ReplyDeleteHi Alex,
ReplyDeleteMay i know where can i get daily share buyback info for companies in KLSE?
hi alex,
ReplyDeleteforget the samgang, as we know his comments are conman type.
just need some advice from you. i bet on bjcorp after reading your comment past week at rm 1.01.
provided the right issue of iculs and free warrants, what is your opinion on this ? worth to subscribe ?
Thanks
Better Stay out of the market for a while.
ReplyDeleteEdwin
hi Alex,
ReplyDeleteYou have been anticipating a bear rally on our KLCI, based on the technical indicators, what would be the level it could act as support for the rally? Based on 2008, is the date 17 March 2008 is the start of bear rally? If this is the case, then can we use the fibonaci retracement of 38% as a reference that will mean on current KLCI of 1294 as the support level? The bear market divides into 3 stages, initial decline, fast decline and bottoming, what situation would constitute a fast decline? Do you have a chart to show the example. Thanks for the sharing, appreciated.
Hi Alex,
ReplyDeleteI added samgang blog site to my bookmark a few months ago. After visited the blog site for less than 1 week, I deleted it from my bookmark.
Nexttrade blog site has been in my bookmark for more than one year and I visit your blog at least once a day. It is one of the best investment blogs in Malaysia, if not the best.
Dun waste your precious time to debate with someone who is arrogant and shallow.
Regards,
frank
Hi Alex,
ReplyDeleteA very nice write up there. However, investor can also opt to pump in stages by stages by using KLCI as the point of entry.
Hi Bonescythe
ReplyDeleteTo buy in stages is an option. As I have said before, Technical Analysis is about probability. Since there is always a chance, that we might read the market wrongly, it is prudent to hedge. In the current case, if you feel that the probability of the market reversing sharply from the current bear phase to a bull phase is say 30% (don't laugh!), you might want to dip your toe into the market for 30% of your intended portfolio size. This is not something scientific, just my personal thought.
Hi FrankKer
ReplyDeleteI don't get upset by what Sam wrote. However, I feel that someone should stand up to him.
Two of my colleagues and a fund manager friend have spoken to me about starting a blog. All three of them have back out because they are worried that their blog might not be up to the mark & they might be criticized by others. I told them to ignore criticism & just do it. They told me that Samgang attacked me incessantly. They are worried that they might be a target of similar attack.
That's one of the reasons I occasionally speak up against Sam because he is like a bully in a playground. He throws his weight around. Personally, I have nothing against criticisms or differing opinions. If they are given in a positive manner, everyone will benefit. In Toastmasters- I'm one- we follow 4 core values. One of them is respect for the individual. We may have different opinion but we politely agree to disagree. In that way, we can always sit down for a cuppa java & be friends. Not Sam. He takes no prisoner. He goes for jugular. That's bad.
Hi tan
ReplyDeleteBJCorp proposed a fairly large capital raising exercise. The main purpose is to reduce its banking borrowings. 85-93% of the proceed is intended for that purpose. Go here .
If you raise funds to repay your bank loans, you strength your Balance Sheet but you do very little to the bottom-line. Some may say that the reduce interest payment would lead to higher bottom-line. From the company's point of view, that's correct. From the shareholders' point of view, the move may not be earning accretive (meaning EPS may not improve). So, there may be no impact on the share price. In the current environment, you may ask the question: Would my money be better deployed to buy other stocks which have declined significantly? To me, the answer would be affirmative. In that case, you may want to switch out of BJCorp to something else.