Market Outlook as at May 21, 2020

The market has been on the roll in the past 6 days. Volume has increased substantially above 7 billion units traded a day. In fact, there were 3 days of 9 billion units traded (on May 13, 15 & 19) and there was one day of 11 billion units done (on May 18). While the play has been concentrated in the 2nd and 3rd liner stock, even the blue chip stocks have seen a pick-up in volume as well as price gain.

 Yesterday, FBMKLCI surpassed the recent intra-day high of 1429 recorded on April 20. With MACD starting to climb up, after entering the positive territory in late April, and ADX beginning to turn up, though still below the 25 mark, we may be seeing another upleg in this rally. If FBMKLCI can break above the 100-day SMA line at 1455, it has a clear path to the test of the psychological 1500 mark as well as the 200-day SMA line at 1520 in the next 1-2 weeks. Bear in mind that the long-term downtrend line, RR will pose a resistance at 1550.

Chart 1: FBMKLCI's daily chart as at May 20, 2020 (Source: Malaysiastock.biz)

Chart 2: FBM70, FBMSCAP, FBMFLG & FBMACE's daily charts as at May 20, 2020 (Source: Kenanga's BTX chart)

The big question in every investors' mind now is whether the bear market is over. The quick answer is a NO. I have to refer you back to my post in March where I compared the current downturn to what we had in the Asian Financial Crisis in 1998 as well as the Global Financial Crisis in 2008 (here).

In that post, I lay down the set-up for the start of market uptrends, as witnessed 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 current rally is still developing (see the numbers in black) with conditions (2) and (3) met while conditions (1) and (4) are still pending. We can refer to the failed market recovery in June 1998 which didn't meet condition (4) as well as not fully satisfy condition (1) i.e. unable to cross above the 40-week SMA line. 

Chart 3: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020 (Source: Malaysiastock.biz)

However, we may be getting ahead of ourselves- no thanks to 6 days of big volume! If we referred to the daily charts for 1998 and 2008, we can see that the 100-day SMA line capped the initial rally at points (A) and (B). Today we are again coming very close to the 100-day SMA line [approaching point (C) at 1455].

Chart 4: FBMKLCI's daily chart for 1997-1999, 2007-2009 and 2018-2020 (Source: Malaysiastock.biz)

In conclusion, our market's short-term target is the 100-day SMA line at 1455. An upside break out of the 100-day SMA line may see the index going up to the psychological 1500 mark as well as the 200-day SMA line at 1520 in the next 1-2 weeks. 

Some players believe that even if FBMKLCI were to falter, the play in our market will continue as retail players are all charged up to punt on 2nd and 3rd liner stocks. I am inclined to believe that the rally in lower liner stocks may continue if the FBMKLCI is still heading higher. Good luck to all in your trading & investing. As always, be careful out there.