Market Review for KLCI, S&P and Hang Seng 06/07/2009

I have not written for the last few weeks because I still could not determine which is market next direction would be. I was not certain whether the correction for KLCI down to 1030 points recently was it, or we should be seeing another round of correction. True, after KLCI’s channel was broken, we saw strong correction across the board but in some way market came back. At that point I knew that if KLCI surge beyond 1095 previous, i.e. the previous high then my view that our market would at least see strong correction then my view would be wrong. But it did not and for now, I would say that market has not decided yet.

The key indicator to our market direction is yet again, foreign market. I believe many of you would notice the textbook Head & Shoulder formation on S&P 500, and DJIA. Of course, that formation has not been broken yet. S&P 500 closed at 896 points while DJIA closed at 8280 points. Interestingly, the trigger point for S&P 500 & DJIA is 890 points 8250 points respectively, which means that these indices were standing at their support level last Thursday. Should it be broken, the next downside is 830 points for S&P 500 and 7500 points for DJIA.


S&P 500


Source: Nextview

Hang Seng still exudes confidence among investors, and standing pretty above 18000 points. It will only be negative once it closes below 17500 points. If we want to see other potential leading indicators, it would be on Commodities & Currencies.


Hang Seng



Source: Nextview

Crude Oil has broken its Double Top formation and should only find strong support at $55, while Gold seems to be well on the way to $870. The potentially damaging factor would be the countries throughout the world reduce their exposure on US Dollar. Recently China & Russia had called for reduced dependency and India has join in the bandwagon.

Now, I am all for reducing the dependency on US Dollar as your reserve, simply because it is not good to rely too much on them. Unfortunately, the world economy system had already been so used to having US Dollar as a reserve currency. Once that reliability is taken out, it would be chaotic, at least for a while. It is like us human trying to quit their addiction, whatever that may be. After all, economy is between human and it will exhibit human symptoms.

That is my take on the potential catalyst that might push world markets lower. As always, it could be anything. As mentioned before this, my immediate view would be more on where is the world market heading AFTER the correction, as I was pretty sure (90% certain) that market would go into corrective mode. If my calculation is correct, then we should still see KLCI correcting down to 970-1000 points. As a comparison since KLCI only has 30 stocks, FBMEMAS is trading around 7100-7200 points. Downside is at 6400 points. That is around 10-11% correction from current level. It would be much easier to forecast market's direction AFTER THE CORRECTION.