KLCI: A Roller Coaster Ride


An extremely volatile market it is today with the index dipping by more than 50 points in the morning in anticipation of the dissolution of parliament. It recovered gradually once the dissolution is confirmed and ended the day marginally higher than yesterday’s closing. As we can see from the chart above, the index reversed after touching the lower boundary of the upward channel, creating a total move of more than 100 points in a single day. As was mentioned in the previous post, as long as the index stays within the upward channel, we can still afford to be bullish. This bullish view is further supported by the fact that the recent upward movement had created a “cushion” that ensure any downfall caused by election fear will not alter the effective trading range. If the index were to remain at low levels in the past few weeks, then the stance would be a bearish one since a dip like the one we saw today would bring the market to levels lower than 1600, thereby changing the effective trading range (which is dangerous because the lower boundary of the effective trading range cannot be known with certainty – This means that the risk is not assessable, and the risk-reward ratio cannot be estimated).

So how will the market fare tomorrow or in the near future? After moving from top to bottom by 50 points, it is more likely than not that funds will take profit and thus a correction should be around the corner. We will have no idea when exactly the market will move down again but we can be sure that the coast is not entirely clear. Volatility will continue to lurk our market as the fear of election result still exists. This does not mean that we should stay at the sideline, however. We do not want to be in the same group as the ordinary retail investors who became extremely pessimistic over the market after experiencing a few roller coaster rides on their portfolio in just few short months. We should be cautiously bullish instead and take any retracement as an opportunity to buy as long as the index stays within the upward channel. This bullish stance should end only when the market fails to create a higher high/ higher low or when the lower boundary of the upward channel is breached, signalling a possible major trend reversal. All in all, we should be participative but not in full position yet – not until we are quite certain that fundamental is about to take precedence over short-term sentiment, which is expected to happen after the poll result is out.

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