Imagine yourself driving on a highway driving at 110km per hour, which is a safe speed on a highway. If I ask you whether you can go faster, I am sure the answer would be yes but you have to be more careful. Furthermore, if you speed up to say, 150km per hour, other cars are mostly averaging 110km per hour, so there would be times where you have the reduce your speed as the average cars would impede your smooth journey.
I see the same thing here on our stock market. Overall market throughout the world can go higher, but the risk too would be higher by then and it will be often stall by obstacles to pull it down towards average speed. That is all very fine indeed and nothing new to all of us. In fact recently I mentioned that even if KLCI corrects down to 1100 points by end of this year market is still Bullish. Just like when you are speeding at 150km per hour, if you slow down to 110km per hour you are still driving fast.
Just like everyday life, there will be time we would be abruptly stall by events on the road. You could be cruising nicely on the road at 110km per hour and suddenly an accident happen. With the average Malaysian so lacking in quality entertainment (save for the occasional weekly dose of football), we know that traffic would suddenly slow down and we are forced to reduce our comfortable speed to crawling phase. Sometimes we only had to reduce our speed and continue driving at normal phase after we overtake the car in front of us, but not when accident happen. You have to slow down.
In relation to market, slowing down before speeding again is a correction. It happens many times before. However, what would concern us is accident. That is the trend reversal. As mentioned before, market will remain Bullish until trend is reversed. Again, in relation to market, you know there is no problem until you have to slam the brakes. A reversal in trend would usually be accompanied by huge drop in points coupled with bigger than usual volume, i.e. the slamming brake.
Even US markets is still trading within Channel. If you analyze S&P 500, you will notice that it is trading within an Ascending Wedge. With the Wedge getting narrower, you know that “Accident” will eventually happen. It is just a question of when.
For now the road is clear and if you believe my theory on the Average Bull Market, this Bull Market should continue until the 1st quarter to 2nd quarter next year (meaning that the 30 days & 90 Days Moving Averages are below the 200 days Moving Averages). In layman terms I believe that such “accident” will only happen next year.
Upside is not great and there are no low hanging fruits anymore. Honestly, right now is not the best environment to make aggressive investment. Unfortunately in our line of work we all know that we are not allowed to rest on our laurels. The attractive sectors still seems to be Banking stocks, with Plantation stocks might be going higher as well if my view on the upcoming CPO price comes true next month.
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