Market Outlook as at June 4, 2020

Yesterday our FBMKLCI rose 30.84 points to 1538.53. It broke above the 200-day Simple Moving Average ("SMA") line at 1520. It may soon test the intermediate downtrend line (in red) at 1550 soon. The same pattern can be seen in FBMEMAS chart. Look at the FBMKLCI and FBMEMAS below.

Chart 1: FBMKLCI daily chart as at Jun 3, 2020 (Source: Malaysiastock.biz)

Chart 2: FBMEMAS daily chart as at Jun 3, 2020 (Source: Malaysiastock.biz)

The question of whether the market has now satisfied the conditions laid down in my earlier post (here) to call the beginning of a market's next upleg must be examined again. To wit:

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.

As at yesterday, we can see that all the above 4 conditions have been satisfactory.

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

Like in the past 2 earlier crisis periods, we are now above the 200-day SMA line, which signals the entry into the bullish phrase in the market.

Chart 4: FBMKLCI's daily chart for 1997-1999, 2007-2009 and 2018-2020 (Jun 3)

Based on the above, I believe the next upleg in the market has begun. Some may still want the main indices (FBMKLCI and FBMEMAS) to break above their respective immediate downtrend lines before pulling the trigger. It is still good to play it safe and by buying into the laggards (say, Maybank over PBBank) and doing so progressively. Good luck.