Market Outlook as at December 24, 2018

Our FBMKLCI is approaching the year-end below the middle line of the upward channel. As noted in my past market outlook posts, a break of this middle line had pointed the way forward for market for the past 18 years. Can the market overcome this reliable market signal?


Chart 1: FBMKLCI's monthly chart as at Dec 24, 2018 (Source: Malaysiastock.biz)

I have also highlighted in the last market outlook post that FBMKLCI had enjoyed fairly strong rallies in the first quarter of the year, especially after a sharp decline. This had happened in every year since 2013. This type of medium-term rally -or, better known as CNY rally - may not be able to overcome the bearish signal given by the breakdown of the middle line (within the long-term upward channel). If it were to come again early next year, it may bring FBMKLCI up to the confluence of the medium-term downtrend (in red) and the middle line of the long-term upward channel at 1720-1725. If FBMKLCI can go above 1720-1725, then the damage done by the breakdown of the middle line may be rectified. If that were to happen, then FBMKLCI may be able to avoid the trip down to the lower line of the long-term upward channel at 1400.


Chart 2: FBMKLCI's weekly chart as at Dec 24, 2018 (Source: Malaysiastock.biz)

Meanwhile, the whole world is watching with both amazement and disgust as the US Government is once again going down the road to perdition. It has become too shamefully obvious to any independent observer that the greatest nation on earth is now led by a man-child President, who insists on burning down the house if he doesn't get what he wants for Christmas. The old saying that a people deserves the leader they chose, applies aptly to America today. How very sad! 

DJIA broke the horizontal support at 23400 last week. It looks like it is heading to its next horizontal support at 21000. If that support were also violated, DJIA may test the psychological 20000 support. I hesitate to think that it may even have to test the clustered support area at 18000.


Chart 3: DJIA's weekly chart as at Dec 22, 2018 (Source: Stockcharts.com)

In light of the numerous economic and political challenges ahead, one would likely recoil and withdraw from the market. While that may not be a bad idea for investors in the US markets, our Malaysian market has been down for so long that it is probably worthwhile looking thru the long list of badly beaten stocks selling at attractive prices. If you take a long-term view, some of the bargains in the market today could well be on the A-list tomorrow. Good luck!

UPDATED: Check out this article in Business Insider which highlighted about a corner of the equity market that has held up relatively well in the current sell-down: Emerging Market. The reason for this is attractive valuation as this sector has been under-performing for the past 3 years. Last week alone, the amount of fund flowing into EM stocks was USD4.5 billion or USD21.0 billion over the past 10 weeks. Sooner or later, the outflow of foreign fund will stop and the inflow will begin.