Market Outlook as at April 23, 2012

Sometimes, when you watch a dull movie, you could be caught off guard by a significant development in the story line without realizing it. Such is the deterioration of our main market barometer, FBMKLCI which had caught me by surprise. You will see from the chart below that FBMKLCI had broken below its intermediate uptrend line at 1598 on April 9. There were two attempts to go above the uptrend line. On April 13, it went as high as 1605 & on April 18, it went as high as 1602. Today, FBMKLCI broke below the 20-day EMA at 1592  as well  as the horizontal line at 1590. All these taken together should mean that our FBMKLCI could be in for a belated severe correction for the next few days. Its next support levels are the 50-day EMA line at 1576 and then the horizontal line at 1565.



Chart: FBMKLCI's daily chart as at April 23, 2012 9Source: Quickcharts)

I have been watching the FBMKLCI for a breakdown for so long that I became insensitive to its minuscule movement. I compounded my previous mistakes by setting a much lower level as a trigger for a breakdown in the market and that level is the 50-day EMA line. Being a much lower level, I failed to notice the breakdown on April 9. However, I have been very cautious in this market in the past few weeks as the market breadth was very poor, which signaled a market that is due for a more severe correction.

To be frank, I wouldn't mind our FBMKLCI put in a 'proper' correction because it is so out of synch with our broader market as well as with other global markets. Once, the FBMKLCI is in line with other main indices as well as our overall market, we can then be more confident in our analysis of FBMKLCI.

Based on today's 'sharp' correction and the above belated breakdown of the uptrend line, I see the main index could correct for a few days. It may trigger some selldown in overall market but I think this could be a good opportunity to buy some stocks.

Finally, I like to apologize for this late update of an important negative technical development. I admit that I did not see this breakdown until today.