Malaysian Past Market Downturns Compared

I have studied our current market meltdown along with the market meltdowns in 1998 & 2008. My objectives were:
1) to identify the set-up for the start of the market uptrend in 1999 and 2009; and
2) to assess the extend of the current decline & the potential for a decent rebound.

I have compiled a composite chart showing the 3 bear markets - 1998, 2008 & today - side by side. These charts are weekly charts plotted on a semi-log scale, overlaid with 3 moving average lines (10, 20 & 40-week SMA lines) and 3 indicators (MACD, Stochastic RSI and DMI).

Chart: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020

The set-up for both market uptrends in November 1998 (the numbers are in blue) and March 2009 (see the numbers in green) are:

1. Index rose above both 10 & 20-week SMA lines
2. MACD crossed above the MACD signal line
3. Stochastic RSI was above 80 (or, in oversold territory)
4. +DMI crossed above -DMI and continued to diverge

The failed market uptrend in June 1998 fell short in one area, namely after +DMI had crossed above -DMI, they did not diverge but instead became entangled and eventually reversed. This could be due to the failure of the index to go above the 40-week SMA line, which eventually reversed downward.

In this round of market meltdown, FBMKLCI has dropped too sharply that we are a long way from achieving a set-up that we saw in November 1998 or March 2009. However, it is possible that we may have a decent rebound, akin to what we saw in June 1998 when the index rallied to test the 40-week SMA line. I consider this to be the optimistic scenario for the market for next few days or weeks.

While we live day-to-day with negative news relating to Covid-19, we should take comfort that Asian societies seem to be more discipline and our stock markets and currencies are much lower to begin with. Thus, when situation improves, fund managers would find Asian equity to be a better investment proposition than the equity of other markets.

For now, let's adopt a cautious approach. If you choose to buy in the market, let's choose the blue chip stocks and accumulate slowly. Good luck!!