KLCI: A Healthy Correction

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The long expected correction finally happened. This came after the index closed above the 1700 level for the first time on Thursday, causing the general public to believe that the market is about to catch up with our international peers that have been rallying since early January. The index plunged by 17 points to 1698.53 today after hitting its all-time high of 1716.47, closing the day 8.51 points lower. The bearish signal had appeared on the 10th of April where a divergence in the index movement with the overall true sentiment (as judged from the number of gainers to losers) can be seen. Such a divergence is a good leading indicator in identifying possible huge dip. By following this indicator, traders/ investors would have avoided much of the huge dip that happened in the past few years, thereby avoiding catastrophic losses on their portfolio.So how would the index perform next week?

Hard to say, but given today’s stable downward movement of the index, it would be possible for our index to continue falling next week. This will create a self-reinforcing bad sentiment that would bring share prices to lower levels. Instead of letting fear to control us, we should see this as a buying opportunity because the technical rebound (of shares) that will come when the index and the overall sentiment recover could send them back to its previous high. Watch for shares that had shed the most today. The more they decline next week, the more lucrative they are. Identify all the possible support levels of the shares so that when the index is expected to recover anytime soon, we can jump-in at the nearest support level. Pick property stocks if possible because the hype is not over yet, not until end of June at least (this doesn’t mean that share prices of property stocks will not fall, however. It merely means that the liquidity in property stocks will remain at the high side and we should continue to see lots of volatility ahead, and therefore more opportunity to profit from the swings). Get hold of high-beta stocks to take advantage of a swift rise should the index recover [Stocks that you may be interested in and should be placed in the watchlist include Uemland, Cypark, FAVCO, Muhibah, Sendai, Padini, Skpetro, Perisai, Tebrau, UOADEV, Dayang, Alam]. Watch the index support levels closely (1680/ 1660/ 1645) as the rebound is likely to happen at these levels and a breached of this support levels would spell troubles to all shares as reflexivity takeovers rational analysis.

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