Further thoughts about the Market Outlook

I have often compared the current market rebound to the rally in March to May 2008. There is a danger in such comparison because market seldom repeats itself exactly. Non-technical analysts would always fault technical analysts as people who would scout the charts for patterns. One writer went as far as comparing technical analysts' study of chart patterns to children playing the game of looking for pictogram in the cloud.

In my opinion, the current market should be very similar to the market in 2008 because investors are going through the same emotion as they confront the unknown- the impact of a possible collapse of a giant economy or a giant economic block. That emotion & the action taken in the pressure-cooker environment would prompt us to act in the same manner- sell when we're in fear (as the market keeps dropping); buy when we're driven by greed (as the market zooms higher); and finally sitting tight & hope for the best (when the market bounces like a yo-yo). When you look at the two charts below, you would see almost the exact pattern of price movement.

In May 20-26, 2008, the FBMKLCI broke below the 20 & 40-day SMA line. The MACD hooked down; RSI cut below the 30-day SMA ; and the -DMI cut above the +DMI. Today, the FBMKLCI is trading above the 20 & 40-day SMA line (at 1458-1465). The RSI hasn't cut below the 30-day SMA nor has the -DMI cut above the +DMI. The only thing negative is the MACD has hooked down.


Chart 1: FBMKLCI's daily chart as at Nov 16, 2011_11.30am (Source: Quickcharts)



Chart 2: FBMKLCI's daily chart from Feb 2 to Jun 30, 2008 (Source: Quickcharts)

While we should continue to track the FBMKLCI index closely to determine the direction of the market going forward, we should take some early precaution given what we had experienced in 2008 & the on-going never-ending problem in Europe. We should take some profit or reduce our position in the market.