Market Outlook as at December 27, 2011

FBMKLCI broke above the horizontal resistance at 1490 last Friday. The 1490 level also looks like the neckline of an inverted Head-&-Shoulders formation. Despite the bullish signal generated by this upside breakout, the market did not react with enthusiasm as reflected by the subdued volume. One after the breakout, the market continued to trade in a quiet mode, with no follow through.


Chart 1: FBMKLCI's daily chart as at Dec 23, 2011 (Source: Tradesignum)

With the above mildly positive signal, another feather is added to the rooster of positive technical readings for the index. Let's look at the weekly & monthly charts below and list out the positive & negative readings. The positive readings are:

1) 10-week SMA line is swinging upward, while the 40-week SMA line is beginning to flatten out. 10 & 20-month SMA lines are similarly rising again.

2) The index is above the 10 & 40-week SMA lines as well as the 10 & 20-month SMA lines.

3) the weekly technical indicators (MACD, RSI & ADX) are all curving upward. In particular, the weekly MACD has hooked up and this could signal the beginning of a recovery in the market.

4) The weekly ADX seems to place the index currently at the same space as 1Q2009.

The negative readings are:

1) The monthly MACD is still bearish.

2) The other monthly technical indicators (RSI & ADX) are still pointing downward.

Based on the balance of probability, I believe the market could be at the start of a recovery.


Chart 2: FBMKLCI's weekly chart as at Dec 27, 2011_3.00pm (Source: Quickcharts)



Chart 3: FBMKLCI's monthly chart as at Dec 23, 2011_3.00pm (Source: Quickcharts)