Near term technicals for the local market is turning increasingly positive premising on the following
observations:-
l Recovery in the weekly RSI after having tumbled to record low;
l Break-out of the weekly RSI from the immediate downtrend could indicate the end of the previous downtrend;
l Recent volume had dwindled substantially on market weakness indicating possible selling exhaustion;
l Bad news are perhaps losing its venom with most having been discounted after the incessant selling for the past year;
l CI on the weekly is looking to break above the various resistances as depicted at near the 880 - 900 levels. Should it be taken out with conviction, a relief rally during the initial part of the near year is a possibility; and
l Market is now entering into a positive period or the so-called “January Effect” whereby based on empirical evidence since 1981, our market had been able to generate positive returns during the initial part of the year especially the first two months which had returned an average of 5.1% gain up to February.
KL Composite Index
Good odds for a bottom
Technicals – 5 January 2009 Page 2 of 2
"Jan Effect" stretched up to Feb of each year
% Chg
1 Feb 08 -6.1%
2 Feb 07 9.1%
3 Feb 06 3.2%
4 Feb 05 0.0%
5 Feb 04 10.7%
6 Feb 03 0.1%
7 Feb 02 1.8%
8 Feb 01 4.4%
9 Feb 00 20.9%
10 Feb 99 -7.5%
11 Feb 98 25.4%
12 Feb 97 2.6%
13 Feb 96 9.0%
14 Feb 95 0.9%
15 Feb 94 -11.7%
16 Feb 93 -0.9%
17 Feb 92 8.8%
18 Feb 91 11.2%
19 Feb 90 7.3%
20 Feb 89 9.5%
21 Feb 88 4.0%
22 Feb 87 29.5%
23 Feb 86 -15.8%
24 Feb 85 2.2%
25 Feb 84 0.9%
26 Feb 83 16.7%
27 Feb 82 -15.9%
28 Feb 81 22.8%
5.1%
While the near term technical picture improves, the fact remains that the primary trend of the market remains to be down as CI continues to trade below the 100-day, 200-day, 52 -week and 104-week moving averages.
Continuing headwinds from bad economic data with lingering concerns on the extent of the economic slowdown means that market upside will most likely be capped.
But do take note that market after having declined some 45.3% at the Oct 2008 low of 829.41 from the peak over a period of 12 months could have discounted a substantial part of the looming global slowdown and hence further downside risk from hereon could be minimal. In other words, odds are good that the local market could have
seen a bottom being put into place during the Oct 2008 low. Whether the October bottom can be transformed further into becoming a major low will need perhaps some further consolidation before one can be really sure. For now, we would expect the market to undergo a relief rally driven mainly by the extremely oversold position,
seasonality and hope of the various pump priming measures making further traction in preventing a major slowdown. Near term, CI has an upside price objective of 915 with 960 – 990 as next possible targets.
Immediate support is now pegged at 880 level with 860 as next. Do watch out for the major break above the 12 - month downtrend line stretching since the peak in January 2008 at the 903ish level. Bears beware.
