Technically Speaking

I really try to not do this because I’d prefer to not write about the stock market on my website. But since I’m not really keen on documenting my personal life at this moment, I reckon, this will have to do, plus, people always seem to like talking about the market anyway.

In November 2019, I was invited to give my view on what’s going to happen to the Malaysian market in the near future. As an ex-stockbroker and a certified technical analyst, I love drawing lines on charts and pretending I know a damn. If you want, you can watch the presentation here:

Me, saying stuff

Anyways, in that presentation I predicted (lol) that the Malaysian equity market may tank in the near future, based off of a pattern that formed on the chart, which technical analysts will call a “double top”. Such a formation, according to lore, is a signal that the recent run up has ended, and we’re all heading for a bad time. Why? It just is, okay, trust me. Shut up.

In the presentation, I commented that based on the visible formation, the KLCI Index (the benchmark index for the Malaysian stock market) was about to head to 1300, a level last seen in late 2011/early 2012-ish. For posterity, here’s the slide:

If you’ve been following the market, you’d know that we actually reached 1300 not too long ago -and if you haven’t been following the market, well, now you know too.

In typical stockbroker fashion, I just wanted to use my hindsight 2020 power, and claimed that I foresaw this back then. And with my hubris, I’ll gaze into my crystal ball to see where the market is heading towards next.

So, first and foremost, I always look at the larger, longer term picture – a glimpse of the major market trend. Let’s have a look:

10 year KLCI monthly candle chart

As you can see in the chart above, since November, coincidentally (or maybe not) after my presentation, the market did nothing but nosedive towards 1300. It is also pretty clear that the market managed to bounce around the level that I forecasted it would, if you would zoom in at the top of the red circle (I’m amazing, I know). What’s also apparent here is that the free-fall was cushioned by the long term (major) support line, which I’ve coloured green.

From here on, I actually think that the market will continue to trade along this major trendline. Obviously there will be fluctuations in between, but overall, I think the general direction is pretty solid at this point. Until it bends, the trend is your friend, err…my friends.

But who cares about the long term, amirite? We want to make money now, because as Confucius says, now, here, is a present. Or something.

Let’s have a look:

3 year KLCI daily chart

On the shorter term chart you will see that for the past 2 years, the KLCI has been dying a slow death. There are gyrations along this line where if you were lucky, you’d have made some money. Things went south really fast in 2020 as it became more apparent what the effects of the pandemic were going to be on the global economy. What we’re also seeing here is that the nose-dive was accompanied by an almost equally sharp recovery – or what people like to refer as a V-shaped recovery.

Reasons are not yet clear as to why the recovery is (at the time of writing) so swift asides from news that the cure for Covid-19 is underway and that we’re about to be saved big time. But us technical analysts don’t care about that, any and all information available will show up in price movements. What we try to do is look at the way prices are behaving, to anticipate where it will go next.

If you look at the red circle, you will notice a huge gap in price. This usually happens when after a market closes, really bad news breaks out -usually about the economy or things that will greatly impact the economy – and traders, on the next trading day, freaks the hell out and starts to sell all the things. Basically this is what happened. You will also see now that in the sharp recovery that happened, that gap is now closing. At this level (around about 1418 -1420), the market will see some resistance and will falter for a little while.

I anticipate that the index will retrace to 1400, and even perhaps 1370, before reattempting to break 1420 levels again. I think the market will just do that, but that doesn’t mean we’re out of the woods yet. The solid red line that I’ve drawn, the downtrend, will continue to be an impediment for now. So in the mean time, I would suggest, for all the traders, investors, punters to be a bit more careful with their trading. Lock in your profits when you can, and cut your losses early, because the overall picture is still not pretty.

Eventually, sentiments will turn, and I hope I’ll be able to spot it, or retrospectively claim that I did. And maybe, I’ll even do another one of these things.

Anyhoos, have you been monitoring the market? Where do you think we’re headed? Let me know.

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