Market Outlook as at December 15, 2011 (updated)

The financial markets are still shaken by the development in Euro zone. This time, it is the poor outcome of last weekend summit of European leaders. They made very little progress on the issue of stability pact as well as achieving no breakthrough of any kind- no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking license for the ESM rescue fund, and no change in the mandate for ECB. This is pretty much due to the German's position with regards to balanced budget as well as its opposition to debt mutualization and extensive central bank intervention. The game-changer that I wrote about two weeks ago, now looks like a wishful dream.

Since the start of the week, financial markets have weakened substantially. The migration from safe assets to risk assets is now reversing. In our local bourse, we saw our FBMKLCI breaking below the uptrend line as well as the 20 & 40-day SMA lines this morning. I have used these 2 SMA lines to gauge the state of the bear rally from end September until today. The end of this rally would coincide with the index breaking both SMA lines as well as the uptrend line that stretches back to end September. As at 9.30am this morning, FBMKLCI dropped 11 points to 1452. This means that the market has again turned bearish. As such, we should avoid taking large position for now.


Chart: FBMKLCI's daily chart as at Dec 15, 2011_9.30am (Source: Quickcharts)

Note: FBMKLCI managed to recover above the uptrend line as well as hanging onto the 20 & 40-day SMA lines. As such, the above market outlook is revised back to neutral.