Market Outlook as at June 16, 2020

Our market took a severe blow yesterday. The FBMKLCI has dropped back below the 200-day SMA line as well as the downtrend line, SS which stretches back to April 2018. The indicators have turned bearish with MACD hooked down and Stochastic RSI below 50. 

Chart 1: FBMKLCI's daily chart as at Jun 15, 2020 (Source: Malaysiastoc.biz)

The question that arose is whether the all green light which I pointed out earlier (here) is now negated. The conditions that must be satisfied on the weekly basis 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

Chart 2: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020 (Jun 15) (Source: Malaysiastoc.biz)

Looking at the weekly chart above, the index is still meeting the above conditions. However, we cannot ignore the warning sign of the failed breakout above the downtrend line, RR. Together with the failure to stay above the 200-day SMA line (as highlighted in Chart 1 and Chart 3), we have to be careful that the market uptrend may fail to take off & reverse. 

Chart 3: FBMKLCI's daily chart for 1997-1999, 2007-2009 and 2018-2020 (Jun 15) (Source: Malaysiastoc.biz)

We will watch the market for the next few days to assess whether the current severe correction will change the trajectory of the market, resulting in more consolidation.