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Sunday, May 31, 2009

Special Technical Perspective

Tactical move to “Take Profit Stance” Since the KLCI made a Wave 3 low at
801.27 (Oct ’08), the next key swings were at 936.63 (Wave 4A in Jan ’09) and
at 836.51 (Wave 4B in Mar ’09). We have peaked at 1,059.88 for Wave 4C.
There is an obvious minor 5 sub-wave sequence that ended the KLCI’s
rebound run to 1,059.88 on 27 May ’09.
Upward retracement targets for the KLCI were met. Our KLCI rebound
targets of 1,043.78 and 1,053.18 were slightly exceeded. With abundant
bearish divergence indicators (ADX, CCI, MACD, MACD Histogram, Oscillator,
RSI, ROC and Stochastic), we believe that the KLCI has peaked temporarily at
1,059.88.
The KL Plantation Index (KLPLN) peaked at 5,515.37. The KLPLN Index
peaked at this level on 21 May ’09. With the obvious bearish divergence
indicators on this index and also the sequence of poorer profit figures for SIME
and KLK, we believe that the KLPLN Index has much further room to fall.
CPOF Elliott Wave Count is also “3-3-5 Flat”. With the KLCI and KLPLN
Indices (and some of their key plantation components like IOICORP and KLK)
having a rebound “3-3-5” Flat Wave structure, the CPOF also traced out a
similar Wave rebound to RM2,799. Ample bearish divergence at RM2,799 also
suggests that the CPOF had peaked at that level on 13 May ’09.
Watch the Ringgit against USD. Some short-term hedge funds had entered
Malaysia in the last 2 months. With this, currency and equity market
appreciation for them may be in the 10% to 30%-region in total. As such, they
may not have any hesitation in exiting their speculative trades. Therefore, do
watch the Ringgit’s prices against the USD as a sign of hedge funds exiting the
country.
Tactically, take most positions off the table. As mentioned in our special
article on 10 Apr ’09, we stated that the “Bull Run” that began in early Mar ’09
was one of a “Bluff-Bull” nature. We firmly believe that a temporary top for the
KLCI formed yesterday at 1,059.88. As such, take most equity on 27 May
positions off the table and realize profits. A larger cash pile is preferable in view
of the potential US and local market downturn in the next few weeks.
News flow has turned negative. The poorer recent Malaysia GDP figures
have taken the markets by surprise. Also, the results of the plantation
companies such as SIME and KLK suggest that the market has run ahead of
true economic fundamentals.
Volumes and market liquidity shrinking As the market rose to 1,037.81, the
traded volumes were quite high (just under 4b). However, with the market
rising to higher levels such as 1,059.88, volumes traded were between 1b to
2b. As liquidity shrinks, it is more difficult for large funds to sell. Selling or
liquidation will take more days to complete and therefore, it has shown up in
the exhausting and bearish divergent indicators.
The defensive stocks are: We believe that despite the potential KLCI
downturn, there are some price defensive components. Among them are
AIRPORT, MMCCORP, PROTON & SUNCITY. Continue to buy them on dips

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