Technical Review 13th October 2009
FBMEMAS Daily
Source: Nextview
Many markets including ours tested their respective support in the last 2 weeks but as it turns out, buying support managed to hold on. KLCI saw selling pressure or profit taking testing its psychological support at 1200 points. However without strong selling volume it was rather easy to spot that support would hold. The technical outlook on US markets was more dramatic since first support was broken but at the end of the day S&P 500 rallied strongly right after testing its critical support.
That was what happened to market. As always we are more interested to know what would or could be happening in the future. First, let us revisit how long a Malaysian Bull Market last. In my calculation, we had 10 Bulls market since 1977. On average, a Bull Market would last around 17.8 months.
However, there is an extreme in the 10 Bull Markets. The first Bull Market lasted 44 months, and that was between December 1977 to July 1981. If we take out this Bull Market, then the average Bull Market length would drop drastically to 14.9 months. By my own personal definition, our market entered Bull Market in April this year. Thus, if we add the AVERAGE Bull Market length, the current Bull Market should last until July 2010. Plus minus 2 months, it may end around May 2010 or September 2010.
Obviously, things would not be as simple as that, but it is good to know that when we have a Bull Market, it usually last slightly more than 1 year or 5 quarters to be exact. Be warned however, that you have to understand my definition of a Bull & Bear Market. As mentioned before this, our market entered Bull Market phase in April this year, but that was 6 months after it hit rock bottom at 800 points. Similarly, the previous Bear Market started in March 2008 but it hit peak in January 2008.
What I am trying to say here is that do not confuse the highest/lowest point for a Bull/Bear Market with the end of the respective Bull/Bear Market. For example, the current Bull Market might hit peak in February or March next year but will only enter Bear Market 4-5 months after that. Interestingly if our market remains flat between 1200-1250 points in the next 6 months (highly unlikely though) and reversed after that, it would still be considered as a full cycle of a Bull Market.
The second important factor that we have to consider is that although market has tested support on many occasions, it is imperative that we understand that market will only go lower IF it breaks the critical support. The most recent example was in Shanghai after it close below 3100 and crash lower by 500 points to touch 2600 points. Shanghai is still consolidating right now so there is no danger just as yet. For Malaysia & regional markets, I will continue to warn if there is any danger that any of these markets is in danger of cracking major support. It is not Bearish until critical support are clearly broken.
So what would be the correlation between these 2 points? Historically we know that market has on average, would remain Bullish for slightly more than 1 year (14-15 months). Our market is currently in the 6 months of Bull Market, believe it or not. Therefore, if there is any technical breakdown, it should be viewed as an opportunity to buy rather than get out of market. The only problem is to measure the degree of correction. Again on Shanghai market as an example, I suspect that the current chart formation suggest that it might be ready for the next up cycle but before that happened it had to face correction from 3500 down to 2600 points. Now the foundation for the next up cycle seems set for Shanghai but I might need to see few more weeks to be certain on that.
In short, on historical basis market is only halfway from its Bull Market journey. It takes a lot to pull market into Bear territory from current level and so far market has not shown any significant signs that it is going lower. If there is good time for market to go down, it should be around the First Quarter 2010 after the Bull Market has matured. At the very least we would know that world market might be flat in June & July 2010 due to World Cup.
Since market might have more than 6 months of Bull Market to go (if the theory is right that is), then we should be looking on what sector that would be good to buy. 1 sector that typically typifies the end of a Bull Market would be Property Stock. This does not mean that they did not go up at all previously. It just means that this class of stock would be going much stronger compared to other class of stocks. Stocks like SPSetia, UEMLand, and IGB seems set to go higher. If these stocks do go higher, expect other smaller Property stocks to go higher as well. So far these stocks had performed well but it did not go crazy.
Another sector that might interest you would be Plantation. Early this year I was Bullish on CPO, thinking that it would be going up to RM2800, and it went as high as RM2775. Right after that I felt it would be going or consolidation, and it has consolidated for 5 months. Now, the chart looks ripe that it might be going up yet again in the near future.
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