Category Archives: FBMKLCI

Short-term Bearish, Long-term Bullish.

2 weeks had passed since I last express my bearishness (on the night of 16th June, in the private group where all my students are in). I hope none of you get caught in the recent market volatility. Here’s a quick update.

I mentioned on the June 21st that there should be a technical rebound following a 3-days dip and true enough it happened. I taught you guys before on how to judge the sustainability of a downtrend. If there’s no strength in the technical rebound, it is highly likely that the market will fall further. The technical rebound happened on the 22nd and 23rd of June (2 days) barely recover 21st June’s losses (1 day). That shows extreme weakness – not much bargain hunting.

28th of June was interesting. The index went from +8 at the opening to -8 at the closing. The major shift in sentiment for the day (or the black candlestick alone) is enough to tell you that the market will definitely fall further (big boys are selling on strength aggressively, knowing that its going to fall further). This sort of day will only trap very short-term traders who might jump in at the opening, believing that he’s wrong on his bearishness. For the majority of you whom I encourage only swing and trend trading, you should not get emotional on a strong opening.

The market continued to drift lower and on Friday it tested the previous high of 1757-1760. Again, I believe this should be a temporary support and not the major turning point as by now it should be quite clear to you that the market is in a downtrend (lower high lower low). A technical rebound should happen again early next week and I shall watch the strength of this technical rebound closely. I strongly believe that this is just the beginning of more sell-down as the index just broke below the 50dMA line for the first time in 6 months. Also, global indices are experiencing huge volatility in the last 2 weeks (trending downward), further strengthening my view. Foreigners are starting to sell heavily as well – last friday was the first time in 6 months foreigners sold more than RM200million worth of shares in a single day (net). As such, I’m maintaining my short-term bearish, long-term bullish view of the market. Expect the market to stay sideway above 1760 throughout July, at best, or down towards the 1730 area, at worst. I will be staying extra conservative as the notorious months of August and September  are just around the corner. If you are still an amateur, I strongly suggest that you stay conservative as well.

–If you remember what I taught in the conference, an important low should be formed next week and most likely to be at the end of the week.–

KLCI: Profit from the Rebound.

The local bourse started the year pretty badly with 2 consecutive days of dipping. At the close, the composite index had shed by 30+ points in the last 2 days. If we were to include the black candlestick on the last trading day of 2013, that’s a total of about 50 points from high to low. Not a small number. So, is this the beginning of a bear market since our local index had rose for about 3 months starting from 28th of August 2013? A number of analysts especially those from the west have been predicting that a recession will occur in 2013/2014. Gann’s disciple will tell you that 2014 will be a bear market (or at best in consolidation mood) in preparation for a 2 years bull in 2015 and 2016. My opinion? No idea. I will let the weekly chart tell me. As for the near term, I’m very bullish. Let’s take a look at the chart of our composite index.

KLCI: The Giant Hammer

At 5:15p.m. yesterday, the FKLI September (futures) contract was last traded at a massive 26 points discount (one of the largest discount gap ever seen on a day when the CI was up). This information alone is enough to tell us about the pessimism of the market and that a crash is about to happen (A warning was posted in our facebook fanpage). True enough, within the first half an hour of the trading session, our composite index loss 20+ points before rebounding. At it’s peak, the September contract was trading at a huge 30-points discount.

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The fall was well-anticipated but the swift recovery was not. After breaking down the 1717 previous all-time high support, I was expecting all hell to break loose and our CI to dip below the psychological support of 1700. But it didn’t. In fact, it didnt even reach the psychological support. Buyers emerged as soon as share prices fell to attractive levels, thereby pushing the price up rather quickly. At the close, the CI was trading slightly above the 1717 level, forming a huge hammer. The discount gap between the cash market and the futures market had also narrowed to less than 20 points. It seems like the bull is getting aggressive today and wanting to win this tussle.

Moving on, 1717 and 1700 will remain as the two important supports to watch for while 1727 will be the immediate resistance (a break of which will signal more upside). As for individual stocks, look for shares that had stay strong during the past few days. As was mentioned in the facebook fanpage, it’s always safer to trade on flags/ pennants after a huge rise in share price. Consolidation is necessary for stocks to move to higher levels.

KLCI: The Big Crash

CRASH!!! 32.94 points down for our local bourse as foreign funds continue to liquidate their investment in Malaysia, creating panic among the local investment comunities. This massive selldown did not come without any signal. If you are sensitive enough, you would have notice that from the beginning of August, despite gainers outnumbered losers for 9 consecutive days (This is considered extremely bullish as a winning streak of more than 6 days is very rare in Malaysia), the market merely rallied by about 30 points, which was about 3.33 points a day on average. The lack of strength in buying tells us that the sentiment was actually pretty weak. There was no follow through buying. On the 7th of August, divergence in the true sentiment of the market (under Sentiment Analysis) indicated that the uptrend is about to end. Also, since last Tuesday, penny stocks have been dominating the top volume list. As was mentioned in the facebook fanpage, when it’s not the year of pennies and yet they dominate the top volume list, it’s an indication that the market is overheated. Any uptrend is bound to end soon.

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Stock-to-Watch: UEMS [5148]

A bad ending it was for the month of July as the market extended its losses by another 22.46 points, after Fitch’s revision of Malaysia’s outlook prompted foreign investors to liquidate their holdings in Malaysia. To-date, the market had suffered a blow of around 40 points since 24th of July, the day our market closed at a high of 1810. This is the perfect opportunities for us to grab some of the fundamentally good stocks at favorable price, so don’t fret.

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KLCI: Getting Weaker

Yes. You read the title correctly. W-E-A-K.

While it’s not entirely bearish yet (the index edged only slightly lower today and the losers outnumbered the gainers just marginally, so for some people there’s still HOPE… Hey! It’s time to wake up!) several signals show that the bears are about to launch an aggressive attack on our market in days to come. If you are an active trader, you would have notice that majority of the shares that have rose for the past few days are starting to reverse. Some are even approaching lower support levels already. For shares that still manage to hold up, the momentum is obviously fizzling out. With the smart money booking in their profit since the first trading day of July, there is no way the market is going to move higher, especially when the regional peers are falling. A correction is needed before traders and investors are willing to take fresh position again. Let’s take a look at the chart.

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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.