Monthly Archives: June 2013

KLCI: Expecting Window Dressing Activities

Another strong green day in the local market with the local Composite Index rose by around 11 points and the gainers clearly dominating the losers. While shares are generally in the green territory, some profit taking activities in the last hours of trading can be seen in a number of them. But hey,  since its the last trading day of June and window dressing activities are expected to occur tomorrow, it’s worth a bet to hold your shares until the end of the trading day before disposing them off – if you are already looking to take profit – unless crucial support is breached. If you are underwater, don’t hold it and hope that it will rise at the end of the day. Cut it when you need to. For those of you who are curious on what window dressing means, its essentially pushing up the price of shares so that the semiannual performance of funds calculated based on the portfolio value as at the last trading day of June shows an improvement as compared to the last trading day of December last year/ the previous quarter/ the month before (May).

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KLCI: Wave 3 In The Making

Fear begets fear. That’s the core of Soro’s Theory of Reflexivity, of which he smartly used to take advantage of the general public’s herd mentality to amass great personal fortune over the decades of his active participation in various financial markets. And yes, reflexivity is happening now in most Asian equity market – at a great magnitude in fact. The past few weeks were disastrous to many as they witnessed their investment gains for the year got wiped off in a relative short period of time. Technical rebounds in global equity markets were short-lived as the weak sentiment induced traders to short on any market pullback. Wrongful application of our innate ability to extrapolate past events to the future causes the investment communities to increasingly believe that we are now experiencing a recessionary dip, and whatever that we had experienced are merely the beginning. This belief is further reinforced by China’s weak PMI data and Bernanke’s “hint” on stopping the quantitative easing, indicating a possible recession or sluggish growth in months or years to come. Recession talks are mushrooming in the local investment communities as well since crucial support levels were breached, no thanks to the appreciation of USD against RM which causes a flight of capital out of our capital market.

KLCI: Into the Rectangle Again

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The index had managed to move into the rectangle again, breaking the support-turned resistance of 1766, thereby showing sign of bullishness. But hold on just a minute. As you can see from the chart, volume is declining as the index moved higher. This indicates that the trend is weakening. At the moment, we need more concrete evidences to determine the sustainability of the trend before we can establish huge long position. Breaking the recent high (the area highlighted in pink) with high volume would be a bullish signal. Otherwise, we should enter only after the recent low of 1743 is tested again or if a higher low is formed. That would be safer.

What if the intraday resistance level of 1775 is broken tomorrow, wouldn’t it be a buy signal? Yes it is, but it’s not a good one, or should I say its not a safe one since we are in the third day of an uptrend. Always remember, never ever take a position in the direction of the trend on the third day because it is very likely that a reversal will occur on the third day or on the forth, making the risk-reward ratio of the position to be unattractive. Unless the market is in an extreme bullish condition, this rule holds most of the time. Again, if you are eager to take a long position, wait for the market to provide you with more concrete evidences. Don’t rush in.

KLCI: The Long-waited Fall

At last, after weeks of consolidation, the strong support of 1766 gives way today. The break of the rectangle signals the beginning of a downtrend. At the moment, with the composite index dipping by a staggering 32.25 points today and a total loss of 50+ points in just 3 days, the most sensible strategy is to wait for the right time to take long position. A technical rebound is ought to follow after such a huge move in such short period of time, possibly at the start of the gap (1718) or at the psychological support level of 1700. One can capitalize on the rebound of the market by betting on shares that had dropped a lot recently and are now close to its major support level. It would be best that the shares had fell by at least 10% from the recent top and had fallen consecutively for at least 3 days. High transacted volume tomorrow will be another plus point. Remember, we are trying to profit from the rebound and not to buy-and-hold.

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Some may ask, isn’t it possible that the index will rise tomorrow instead since it had fallen so much today? Yes it is possible, since 1743 could be a support level. If the market really pullback tomorrow, then the strategy should change from preparing to take long to take short. Watch for opportunities to short the market again if the pullback is weak. The support-turned ressitance of 1766 would be a good spot to initiate short future contracts.

Stock to Watch: MHB [5186]

Before we perform a thorough analysis on the price development of MHB [5186], lets take a brief look on the general market movement. As can be seen from the chart below, the index is still moving within the sideway channel (or in a rectangle). Market was weak in the morning, dragged by the poor performance of the regional market, but began to recover in the afternoon session and managed to close just below its opening, thereby forming a doji. With buyers coming in everytime the market touches the 1766 support level, it is hard to tell at this point whether the bull or the bear will triumph in the coming weeks. We need to watch the upper and lower boundaries of the sideway channel closely.

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Stock to Watch: Glomac [5020]

Opportunities for day trading are getting scarcer. With foreign funds began to offload their massive holdings since last week, coupled with the weak performance of the regional markets, our local bourse is expected to move sideway/lower in the near-term. The 1765 support is a crucial level to watch for as a breach will lead the composite index lower, which will definitely cause a round of sentiment-based selling across all shares. While most shares are gradually reversing, some are consolidating and are waiting for the right moment to move to higher grounds. Glomac [5020] could be one with such upside potential.

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