Market Outlook as at January 7, 2019

FBMKLCI rebounded today with a gain of 9.4 points to close at 1679. From the weekly chart below, it looks like MACD is poised to cross above the MACD signal line to give the bullish MACD crossover. In addition, the elevated -DMI is beginning toturn downward while the depressed +DMI is beginning to turn upward. The elevated ADX, which confirms the strength of the preceding downtrend, is also beginning to turn downward. The last 2 times the index rebounded off the "uptrend line" with the similar MACD and ADX set-ups were in September 2011 and August 2015. We may see a mild rally like August 2015 or a strong rally like September 2011.


Chart 1: FBMKLCI's weekly chart as at Jan 7, 2019 (Source: Malaysiastock.biz)

Another condition that will be supportive of a rally is the strengthening of MYR vis-a-vis USD. The last time we saw the MYR strengthened against USD was in 2017. That coincided with a 6-month rally in FBMKLCI.


Chart 2: USD-MYR's weekly chart as at Jan 7, 2019 (Source: Investing.com)

The strengthening of MYR is in turn supported by the recovery in crude oil prices and CPO prices. From the charts below, we can see that Brent has broken above the downtrend line while CPO looks poised to challenge its downtrend line.


Chart 3: Brent's daily chart as at Jan 4, 2019 (Source: Stockcharts.com)


Chart 4: CPO's weekly chart as at Jan 7, 2019 (Source: Investing.com)

After the sharp rally in US markets last Friday, many investors are asking whether the worst is over for the US markets. Looking at the 3 charts below, we can see that it will be a while before the US markets can recommence on their uptrend again. At best, the US markets will consolidate for the next few months- probably trading in a sideways manner. JPMorgan believes the US market is poised for a blistering rally due to the increased pension funds buying (the smart money) coupled with the contrarian signal of large mutual fund outflow (the dumb money). If US markets stabilized, investors in Malaysia will be able to invest with greater confidence.

Chart 5: DJIA's daily chart as at Jan 4, 2019 (Source: Stockcharts.com)


Chart 6: Nasdaq's daily chart as at Jan 4, 2019 (Source: Stockcharts.com)


Chart 7: S&P500's daily chart as at Jan 4, 2019 (Source: Stockcharts.com)

Based on the above and my earlier piece on the likelihood of a return of the CNY rally, I think this is a good time to accumulate some stocks in the market.