Market Outlook as at December 2, 2014

FBMKLCI tested its recent low of 1766 yesterday - it went as low as 1764 - before rebounding. This market is searching for a bottom. Once that's established, we may see the market trading sideways or begin another upleg. See Chart 1 & Chart 2.


Chart 1: FBMKLCI's weekly chart as at Dec 2, 2014 (Source: BTX)


Chart 2: FBMKLCI's weekly chart from Apr 2011 to Dec 2, 2014 (Source: BTX)

The question is whether the horizontal support od 1760-1770 will hold on the next test. If  we look at the index in July-September 2011, we saw FBMKLCI testing & trying to hold onto the horizontal line at 1470. When that support failed - due to persistent bad news flowing out of Europe - the index dropped to the next 2 levels of support at 1365 & 1300. If the same scenario is played out today, we might see the index testing the 1700 level or even the 1600 level.


Chart 3: FBMKLCI's weekly chart from Nov 2008 to Oct 2011 (Source: BTX)

Meanwhile European markets - represented by DAX - has recovered substantially over the past 4-5 weeks. I am doubtful that the DAX will be able to climb above its violated uptrend line. I believe the rally in DAX could have run its course and the correction is likely to kick in soon.


Chart 4: DAX's daily chart as at Dec 2, 2014 (Source: Stockcharts.com)

Meanwhile Nikkei and US markets - represented by S&P500 - are going higher. However, we can see that Nikkei will have to surpass the line connecting the recent peaks at 17700 and S&P500 will have to do the same at 2080-2100. 


Chart 5: NIKK's daily chart as at Dec 2, 2014 (Source: Stockcharts.com)


Chart 6: S&P500's daily chart as at Dec 2, 2014 (Source: Stockcharts.com)

The question on everyone's lips is when will crude oil prices bottom. I believe that a bottom is not far away. WTIC broke its long-term uptrend line, S-S1 at USD94-95 (if we ignored the prices at the bottom in 2009). If we take the 2009 extreme prices into consideration, the tentative uptrend line support is now at USD50-60. Whether the support is at USD50 or USD60 depends on whether you are drawing the tentative uptrend line using the intra-day low prices or the end of month prices.


Chart 7: WTIC's daily chart as at Dec 2, 2014 (Source: Investorshub)

For those who are crying for higher crude oil prices, this article from Jeremy Grantham in Business Insider on shale oil is worth reading. Grantham, a well-established fund manager, believes that shale oil is a very large red herring. He pointed out that shale oil well's productive period of about 2 years renders many forecasts of US's upcoming crude oil productive prowess a pipe dream, like pigs can flying. Check it out for yourself.

Based on the above, I believe that we can consider slow buying in the market now, especially for O&G stocks that had been badly sold down. My preference is for large well-capitalized O&G stocks such as Armada & UMWOG.

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.