Market Outlook as at October 7, 2014

Our market internal continued to weaken. Yesterday, FBMKLCI lost a mere 7 points but losers outnumbered gainers by 804 to 159. While FBMKLCI hung tough on its uptrend line at 1830-1840, the strength may well be temporary, due mainly to local funds supporting blue chip stocks such as TM, Axiata & Tenaga. The buying support has propelled these 3 stocks above their strong resistance. Meanwhile the middle market has been losing ground as well as market leaders, such as SKPetro, Bonia, PMetal & KSL. All these 4 stocks broke below their uptrend lines. They may remain in doldrums for a while or they may even continue to trend lower, as seen in the price movement for Petdag and GAB.

In a market where 2nd and 3rd liner stocks rein supreme, one has to wonder whether we are at the cusp of a major market top, which may not be revisited for many years. This market reminds me of 1995-1996 when speculators, fresh from their killing in the property market, charged recklessly into the 2nd Board where every stock was pushed above RM10. While our market has not reached the level of insanity of 1996, the rise of many 2nd & 3rd liner stocks has been spectacular. If our property market were to correct next year, cash-tight speculators would have to liquid their investment. Given a choice, I believe speculators would choose property over equity.

If the market continues to weaken, we could see a breakdown of the uptrend line at 1830-1840. The next stop, where a rebound must kick in, will be at 1800. Failure to stay above 1800 could signal the end of the uptrend and the market going into hopefully into a sideways market. Below 1800, I see support at 1600 & 1350.

Based on the above, I think it is time to reduce our exposure to our equity market.

 
Chart 1: FBMKLCI's weekly chart as at Oct 7, 2014 (Source: BTX)

 
Chart 2: Bonia's weekly chart as at Oct 7, 2014 (Source: Tradesignum)

 
Chart 3: KSL's daily chart as at Oct 7, 2014_semilog (Source: Tradesignum)

 
Chart 4: Pmetal's daily chart as at Oct 7, 2014_semilog (Source: Tradesignum)

 
Chart 5: SKPetro's weekly chart as at Oct 7, 2014 (Source: Tradesignum)

 
Chart 6: TM's weekly chart as at Oct 7, 2014 (Source: Tradesignum)


Chart 7: Axiata's weekly chart as at Oct 7, 2014 (Source: Tradesignum)


Chart 8: Tenaga's weekly chart as at Oct 7, 2014 (Source: Tradesignum)


Chart 9: GAB's weekly chart as at Oct 7, 2014 (Source: Tradesignum)


Chart 11: Patdag's weekly chart as at Oct 7, 2014 (Source: Tradesignum)

Yesterday, DJIA dropped 272 points. If you look at the chart below, DJIA is still in an uptrend. I would only be worried if DJIA goes below 16500-16600- the 200-day SMA line. The resilient US market acts both as a driving force propelling global markets as well as the magnet that draws away funds from emerging market during periods of uncertainty.


Chart 12: DJIA's daily chart as at Oct 7, 2014 (Source: Stockcharts.com)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of any of the stocks or indices shown above.