Market Outlook as at May 26, 2017

Last week FBMKLCI ended on the 3rd fan uptrend line (S-S3) at 1770. Based on my previous analysis (here & here), this is a critical support which will determine the market outlook. As noted before, a breakdown of the 3rd fan uptrend line, S-S3 could signal the end of the uptrend. 


Chart 1: FBMKLCI's weekly & daily chart as at May 26, 2017 (Source: Shareinvestor.com)

I will go into the market next week with much apprehension, notwithstanding the technical rule that a trend remains in force until it has reversed. Two reasons make me worried about this market.

Firstly, our market breadth was quite negative last week. If you look at the table & graph below, you will see 2 weeks of market gainers, losers & unchanged stocks.


Graph: Bursa Scoreboard for 2 weeks to May 26, 2017

If you plot the market breadth against the FBMKLCI (30-min intra-day chart), you will see a divergence between the index and market breather. We may deduce that the top 30 stocks (represented by FBMKLCI) were holding up relatively well while the broad market was deteriorating.


Chart 2: FBMKLCI's 30-min intra-day chart as at May 26, 2017 & Market Scoreboard (Source: Shareinvestor.com)
 


If you look thru the individual indices by market cap & segment, you will see the relative strength of the top 30 stocks is shared by the second liner stocks. FBM70 – which represents the 2^nd liner stocks – is also holding up relatively well. See the chart below.



Chart 3: FBM70's weekly & daily chart as at May 26, 2017 (Source: Shareinvestor.com)

Next, we can see the lower end of the market is poised to drop further. FBMSCAP, FBMFLG & FBMACE - representing the 3rd liner stocks, the fledgling stocks & the ACE stocks - have broken their immediate uptrend lines (S1-S1). These stocks may continue to slide all the way back to the intermediate uptrend lines (SS) before the prices may stabilize.  


Chart 4: FBMSCAP's weekly & daily chart as at May 26, 2017 (Source: Shareinvestor.com)


Chart 5: FBMACE's weekly & daily chart as at May 26, 2017 (Source: Shareinvestor.com)


Chart 6: FBMFLG's weekly & daily chart as at May 26, 2017 (Source: Shareinvestor.com)



Hence you have to be careful not to be caught up with the potential slide in the lower end of the market for the next few weeks. We can only hope that FBMKLCI will stay above the 1770 mark; thus providing investors with a measure of stability in a volatile market. If FBMKLCI were to break the support at 1770, then the market will be bearish for quite a while. Your approach should be to reduce your exposure if the market consolidates from hereon.