Further thought on our market

The sharp drop in FBMKLCI has prompted a few of my clients to pose the question- How bad can this correction be? From Chart 1 & 2 below, we can see that Hang Seng & Strait Times indices had corrected by 9-10% over the past 1 month. If FBMKLCI were to give back 10% from its recent high of 1790 (ignoring the high of the euphoric high of 1826 recorded on May 6), then our index may drop back to 1610. Shocking indeed!!

Note: Despite the sharp correction, both HSI and STI are still in a long-term uptrend line.


Chart 1: STI's daily chart as at June 12, 2013 (Source: Stockcharts)


Chart 2: HSI's daily chart as at June 12, 2013 (Source: Stockcharts)

Meanwhile, the two biggest economies- USA & Germany- are chucking along nicely and their main stock market barometers (S&P500 & DAX) are comfortably above their long-term uptrend line.


Chart 3: S&P500's daily chart as at June 12, 2013 (Source: Stockcharts)


Chart 4: DAX's daily chart as at June 12, 2013 (Source: Stockcharts)

This note serves to highlight the point that the market risk is always present. We may underestimate this risk, such as the downside risk in our market over the past 2 weeks or the upside risk in Hong Kong or Singapore, now (if these markets rebound from their respective long-term uptrend line).