Two weeks ago I ‘forecasted’ that the market would head upwards to 1470 before making a slight pause.

Well, it did just that – it went to 1470 on the 29th of May and paused – mainly because the market closed. The next couple of days, it just sailed upwards, seemingly not wanting to look back anymore.

So that makes it two strikes for me. Two recorded instances of me totally blundering my forecast. Yikes. As technical analysts, we’re supposed to ignore known sentiments, and purely look at what the charts tell us. The charts, contain all economic, sentimental and financial information, and makes that information visible on the movement of the prices, or so we’re told.

But to be completely honest, we all impart some form of our own sentiment in our analysis, both us ‘technicians’ and the fundamentalists. Don’t deny it, it’s true.

In my earlier analysis, I told myself, there must be some logical reason as to why the markets are behaving as they are, and I think for me, the reasons are:

1. Higher liquidity – with the loan moratorium in place, some people may put have decided to participate more in the market, explaining increased retail participation in recent data.
2. Optimism of a fast recovery post lockdown.

If these are the main reasons for the rally, the eternal pessimist in me tells me that tough times are ahead.

Why?

Well for one, the loan moratorium is temporary. For many, reality will bite by as early as September, so all that liquidity we’re seeing, will dry up by then, leaving no one else to push the markets higher, except the institutional buyers.

But will they push it up? I don’t have the numbers now, but given current conditions, I’m inclined to believe that valuations are quite dear at this point, taking into account our overt optimism of a fast economic recovery. I’m guessing many institutions are looking for opportunities to offload some stocks, which they are probably doing now, in ways that will not spook the market away.

I honestly believe that hopes of a quick recovery after the global lockdown is overblown. Locally, we are probably only beginning to see retrenchments happening. And as fear of job loss begins to take hold, I expect consumer sentiments will begin to falter, then consequently so too shall business sentiments. In my opinion, government programmes have been wanting, and their efficacy has been lacking, but I’m not going to elaborate.

Long story short, I think that this rally doesn’t have a leg to stand on, and is driven by purely hope. So, where to from here?

1555 is my next resistance area. With the swathes of good news regarding stimulus plans coming out, I won’t be surprised if the market goes ahead and sails past that straight to the purple, double top neckline of 1616.

At 1616, traders should begin to question themselves, “we have gone above pre lockdown levels, can we really go above the initial level at the beginning of the year? Will earnings for the whole market really be better, at this point, than last year?”

I know that as a technical analyst I’m suppose to ignore all these questions, but, somehow I can’t.

The good news is that the market has broken above the downtrend resistance, so for now, we’re not stuck heading down. Now all we have to do, is watch what the market does on its way to 1616.

My take is this, the market isn’t trading based on fundamentals right now, so if you want to trade, trade the current themes, take profit quick, and be much more aware as we head closer to the end the moratorium.

May the force be with you!

Othe reading: Job losses increaes by 42% in the first quarter of the year, says Socso