Market Outlook as at May 23, 2016

Over the past 6 weeks, FBMKLCI dropped about 100 points from 1720 to about 1620. In the process, FBMKLCI has broken below the 40-week EMA line & gone back into its irregular downward channel. Indicators are pointedly negative, such as MACD going into the negative territory and ADX crossing above the 20 mark. Like the period of June-July 2015, the index would rely on the next psychological support to stay afloat. Failure to stay above the 1600 psychological level now could bring on a sharp sell-off similar to what we saw in August 2015.


Chart 1: FBMKLCI's weekly chart as at May 23, 2016_12.30pm (Source: ShareInvestor.com)

DJIA has made a temporary top. We can see that 20-day SMA line has just crossed below the 40-day SMA line while MACD has gone into the negative territory. Unless a strong rebound happens quickly, DJIA could continue to slide to the 16000 psychological level again. This could trigger a global sell-off - coinciding with a similar sell-off in Bursa Malaysia.


Chart 2: DJIA's daily chart as at May 20, 2016 (Source: Stockcharts)

Based on the bearish outlook for FBMKLCI and the US markets, we should reduce our trading activities over the next few weeks.