Market Outlook as at March 15, 2016

Despite improved market sentiment coming from a recovering MYR and foreign fund buying, FBMKLCI struggled to climb above the psychological 1700 level. This psychological level happens to be the medium-term downtrend line, rr. If it can be taken out, FBMKLCI may continue to march to a bigger challenge: Intermediate downtrend line, RR resistance at 1720. With MACD still in negative territory and ADX showing little upside momentum, the probability of a breakout above the uptrend line, RR is rather low.


Chart 1: FBMKLCI's weekly chart as at Mar 14, 2016 (Source: ShareInvestor.com)

The mildly bullish undertone can also be seen in the 2nd liner stocks as reflected by the rise of FBM70 index. This index is also faced with the challenging prospect of breaking above its intermediate downtrend line at 13000-13100.


Chart 2: FBM70s weekly chart as at Mar 14, 2016 (Source: ShareInvestor.com)

FBMKLCI monthly chart shows that the market could have bottomed. This is reflected in the rebound in the Slow Stochastic, the sideways movement of the MACD and the decline in the -DMI (accompanied by declining ADX & ADXR). Going forward, we may see a small, short rally similar to what we saw in the 1st half 2002.

 
Chart 3: FBMKLCI's monthly chart as at Mar 14, 2016 (Source: ShareInvestor.com)

The catalyst for a recovery in the market will be the improvement in our MYR. This may come about as foreign funds may find our market relatively inexpensive in USD term. The improvement in MYR may reflect improved economic outlook. The economy may receive a boost from the recent recovery in the price of crude oil and CPO.

From Chart 4, we can see that WTIC has just broken below its medium-term uptrend line, SS at USD38. A minor pullback could well send WTIC to USD35. Until WTIC has broken above USD40 (see Chart 5), long-term recovery in crude oil is still a work-in-progress.


Chart 4: WTIC's daily chart as at Mar 14, 2016 (Source: Stockcharts.com)


Chart 5: WTIC's weekly chart as at Mar 14, 2016 (Source: Stockcharts.com) 

As noted last week, CPO price is likely to ease back as the Parabolic SAR (SAR stands for 'stop-and-reversal' indicator) has moved above the CPO price. The immediate support is the intermediate uptrend line, SS at RM2450. If this support holds, plantation stocks will continue to trade higher (as seen in the share price of IOICorp and Sime). If it does not, CPO may decline to the strong horizontal support at RM2300.


Chart 6: CPO's weekly chart as at Mar 14, 2016 (Source: ifs.marketcenter.com)

All in all, the economic situation has improved somewhat, from not good to not bad. However, since the bar is set at a pretty low level, we can expect some kind of rebound to take place. Based on this, we may take a constructive position in the market in order to benefit from further rise in share prices. Good luck!