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.

klci (6)
So, more downside to come? Probably. But before that, I expect a massive technical rebound to occur, which we could definitely profit from. One of the indicators under my Sentiment Analysis is already pointing at north, suggesting that the market is extremely oversold right now and it’s safe to start buying tomorrow. Since the index managed to close just above 1743 today after breaching it, it could be a sign that the market might reverse tomorrow (If you try to use Fibo expansion on the previous downwave, you would find that today’s low is at 161.8%). Alternatively, the index could dip by another day as today’s panic selling spurs more panic selling tomorrow, causing a downward spiral in share prices. Either case, we would be buying at the bottom if we were to execute our trades tomorrow. As usual, pick shares that are hovering at support levels since buying at support levels provide us with good risk-reward ratio. Some of the shares that you might want to consider include:-

Pantech – Trading at it’s horizontal support level of RM1.01, which coincidentally is also it’s trendline support level. As long as the share price doesnt break below 99cents, it will have a good chance of rising as the market sentiment recovers.

Malton – Currently trading at it’s minor support of 90cents, which is also the base of the short-term bull flag formed last week. Be cautious as a break and close below 90cents would mean that the share price would continue to slide to lower support levels (85.5cents or 83.5 cents).

E&O – Falling by 18cents in just 2 days, this share managed to close at it’s support level of RM2.08 today. However, with the bulk of supply of shares at RM2.08, I suspect that the price might fall lower tomorrow, possibly reaching the psychological support of RM2 before rebounding. Thus, we should accumulate only at the pink highlighted area, to be safe.

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