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.


Today’s price movement of the index constituents had led the index towards the minor horizontal support level of 1833 (highlighted in pink), which coincidentally is also a support on the slopping trendline. The index movement had achieved a balance of time (PVT analysis), which means it is ready to move at the opposite direction for at least one day. Buying tomorow at price above 1820 major support level (highlighted in green) would be a wise decision. At the moment, we can’t tell whether this upwave is a continuation of last year’s bull run or merely a technical rebound that will lead to a major correction. But what we know is that the index is expected to move up slightly and sentiment is expected to recover a little, from which we can make some money. Pick shares that either (1) got beaten down pretty bad lately, (2) shares that are resting at support or (3) shares that retraced just sligthly from it’s recent high despite the major selldown in our index (meaning no one is selling, so it’s a good sign). You may want to take a look at property stocks again as some of them are forming double bottom or even breaking it’s previous high. Do trade carefully.