Still Need To Cautious Current Market

Smart Finance

After months of being bullish, investors and traders were uncertain in the past one month and now the sentiment is getting a little bearish. The market is not being fed with strong positive catalysts in the past few weeks and many warning signs were given by analysts that the financial crisis has not ended. Manufacturing sales in Malaysia declined for six consecutive months and consumer price index which measures inflation rose 3.3% for the first five months against the same period last year. Unemployment rate in the US continues to make historical highs.

Money Wise

Price of commodities pulled back after rallying making new highs this year amid concerns about global demand which seems to hit a snag as inflation rises. The price of Crude oil closes below US$60 per barrel after staying above US$70 for a few weeks early June.

The price of Crude Palm Oil in the futures market fell 25% in a month from RM2,700.00  to RM2,000 per metric ton. Price of Gold fell as well from US$980 per ounce to USS910.

Market review chart

To add salt the wound in the market sentiment, the increasing H1N1 flu outbreak has become a great cause of concern if companies have to slow down production if employees are being infected. The market finally fell on-month after increasing for three consecutive months. The KLCI closed at 1,067.76 points on the 10th of July, 15.21 points or 1.4% lower than the previous month. The KLCI traded relatively more volatile in a trading range between 1,028.14  and  1,095.91 points last month.

Trading volume was relatively lower. Daily average trading volume fell from 2 billion shares to 1 billion shares on-month. This reflects the weak market sentiment.

As compared to other Asian markets, the Malaysian market is still one of the most defensive market, and notice that the western markets are the weakest performers even for the past 6 months.

Market review chart 2

The uptrend is still intact as the KLCI is still above the mid and long term 60-and 90-day moving average. The KLCI has tested the short term 30-day average twice and is now below this average market momentum is much weaker as compared to last month. The KLCI is only 7.7 percent above the long term 90 day moving, average (90-SMA) which is currently at 990 points. The difference in the previous month is 11%.

The momentum of the current up trend is getting weaker. The bears have started to take some grip in the market. Momentum indicators like the 14-day

RSI, 14-day Momentum and MACD have heels making new lows since last month. The indicator values are currently near the middle mark whirls separates the bulls and bears dominance. It has been favoring the bulls since end of March this year. The leading Ichimoku Cloud indicator has started to contract as well which means that the uptrend support is getting weaker, but does not sign a major bearish reversal yet at least for the next one month.

market review chart 3

The Bollinger Bands which were expanding has also started to contract and this simply means that the KLCI is trading near its 20-day average. The mid­term swing of the Barros Swing indicator shows a lower swing high. The swings were higher since March. The weekly Average True Range (ATR) indicator has also declined almost half on-month. All these volatility indicators are suggesting a weaker momentum.

Conclusion

There were some weak technical indications last month that urges investors and trades to trade cautiously and in the past few weeks, the technical indicators have started to show stronger signs of the market getting more bearish.

Last month, I mentioned that the market may test the next resistance at 1,160 points but with heavy resistance and the KLCI did find strong resistance at 1,095 points. The probability of the KLCI testing the next resistance level has become thin. We may see a start of a bearish trend, as long as the KLCI remains below the 1,160 resistance level.

Expecting the KLCI to go into one more bear rally to complete the price cycle in the 3. or 4′ quarter and we already in the third. The forecast for KLCI is 700 points and is only valid IF the KLCI stays below 1.160 points. I have written my analysis about the price cycle in my previous two articles. Stay out of the market and if you have large positions, liquidate some of them and get them back when price gets lower.

Rate this post