Tag Archives: support

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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Stock to Watch: GAB [3255]

The composite index edged higher today with oil and gas counters getting most of the attraction (Perdana, Penergy, Alam, and Dayang). Looking at the current market sentiment, the index is expected to stay strong and will re-test the 1793 resistance level again in days to come.

The focus of today’s discussion would be on GAB [3255], a brewing company which had dipped by more than 20% from it’s highest high in just a month. Investors who kept on adding their position as the share price eased are now worrying that their decision to buy could be a huge mistake. If you fall into this category of people, let me assure you that the share is about to rebound very soon. So don’t fret. As for the others who are looking to take a position… let us look at the chart first.

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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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