KLSE Analysis Weekly Market Outlook May 29 To June 2 2017

While the Malaysian stock market has been volatile the past week, the general trend is still up. The market is expected to continue to move higher as long as it is above its rising 20 MA and rising 50 MA. The KLSE has been moving sideways as indicators diverge from the rising trend but it is expected that these are temporary fluctuations which will eventually be won by the bulls. During times of volatility, an investors account will be hit tremendously and trading in and out of stocks is extremely risky and only a skillful trader can pull money out of this type of market consistently.

Long Term Outlook For KLSE

Despite all the daily volatility an investor or trader always need to look at the big picture. By looking at the big picture it means looking at the weekly charts and even monthly charts. The weekly chart of KLSE below shows us that the long term bull market is still alive and the recent daily volatility is just noises.

First of all, we have overcomed a very important resistance area around 1720 which now acts as a very strong area of support. That was when foreign funds and inflow came in massively into the Malaysian stock market. Billions have been flowing in if you check the statistics. This coincides with intermarket analysis because foreign funds tend to perform intermarket analysis and inject cash into the market when favorable intermarket conditions appears in a country's market. How The USD/MYR Pointed To A Big Bull Run In The Malaysian Stock Market

The Malaysian Ringgit has strengthen tremendously against the greenback which is why many foreign funds love Malaysia at the moment. If you check the counters that have a big impact by a strengthening Ringgit, you will realize they are up thanks to the stronger Ringgit.

There has been many good reports of the Malaysian economy, GDP etc etc and good profits and earnings from local big banks such as CIMB and Maybank and all this points to a growing economy in Malaysia. Things are getting better and better for Malaysians and since the stock market is a forward looking machine, we can expect things to improve for local Malaysians in 3-6 months time. Which is when the elections will most probably be taking place.

Generally, when people in the country feel the economy is better that is the best time for the incumbent government to have an election. A rising stock market 3 months prior to an election will usually help the incumbent government to stay in power. The stock market has at least an 80% accuracy rate in predicting elections around the world. How Stock Markets Around The World Have Correctly Predicted Elections 80% Of The Time

In the chart of the USD/MYR above, we can see how important intermarket analysis is in determining a bull market in Malaysia. The bull run in Malaysia started as the USD/MYR topped out forming a weekly double top. As the pair weakened, foreign funds keep on pilling in and they bought Malaysian stocks in millions. The USD/MYR is expected to decline further to at least $4.20.

Daily Charts Show Volatility But A Breakout Is Likely Soon

While the long term weekly charts show that the bull market is still very much alive, the daily charts have not been very kind to investors' portfolio. The formation of the ascending triangle is a period of volatility followed by contraction as it breaks out. During this time, many portfolio will be hit and its at this time that retail investors should stay out of the market as only skillful investors or traders will be able to make money. How The Ascending Triangle Can Be A Great Setup For Longs In All Time Frames

Volatility increase as there was divergence between rising price and indicators. Long term wise, the price action was absorbing a lot of supply from the weekly charts. I believe that if the KLSE breaks out of the ascending triangle, things will be much smoother for traders and investors.

The very best times for an investors portfolio or for traders to make money is when then index breakouts of a consolidation, a pattern or break downtrendline. Which at this moment as the KLSE forms an ascending triangle there is not much opportunity for traders to do so. While the pattern is forming, increase volatility will hit investors portfolio. Things will be smoother if the KLSE breaks out of the ascending triangle. 

Knowing when to trade and when not to trade is just as important as selecting stocks. Period of volatility in the stock market is best left to the pros and it is only when the indexes are trending nicely in the 60 min charts that non full time investors or traders should put their money to work.

As you can see in the 60 min chart above, the recent price action of KLSE is really volatile and it is very difficult to make money in this kind of environment which is best left to the pros.

Generally the best time to invest or trade for most people is when:

  • The index is above its smooth rising 60 min 20 and 50 MA, which we can see from April 19th to early May

The US stock market, the SPX and Dow is currently in a nice 60 min uptrend which is why it is easier to make money in the US market now. The best time to trade or enter positions is when the indexes are in a smooth 60 min uptrend. Otherwise its best to leave the trading to seasoned traders.

Individual Stocks

I have been looking at many many Malaysian stocks. Most of them friends ask me to analyze them. Although I have analyzed lots, there are only a handful that I really had conviction on for trades or longer term holds. Its like looking at 1000 stocks, only 50 we should put on the watchlist. Out of the 50 only 2-3 we will end up trading. That is how a trader or investors should look at things. There are lots of stocks that bounce up and down everyday but in reality, there are only a few stocks that I would really trade. I don't trade Malaysian stocks but a few that I really loved and had conviction was.

  • Pentamaster (Went from 1.85 the first time I liked it, to around 3.50 top. Now don't like it that much but may still give a trading opportunity)
  • MAHB (Really like this one when I saw an ascending triangle, had conviction on this one. Went from 7.30 and met the old high near 9.00. Now declined a bit. Target met)
  • IQ Group (Still in a nice uptrend but lack liquidity)
  • Bursa Malaysia (First saw it when it was at 9.70. Now almost 11.00. Short term trade target is met but still think it will go up in the long term as long as the Malaysian stock market continues to rise. Exchanges make more money in bull markets)
  • Lion Industries (Saw the ascending triangle at 0.83. Met my trade target of 1.20 although RHB states a target of 1.40)
  • Mega First Corporation (Love this one because it looks like the chart of Amazon. First like it at 3.10 now its at 3.80)
  • Malayan Banking Berhad (Still in a nice daily uptrend although hitting strong weekly resistance)
  • MYEG (In a strong weekly uptrend)

Out of all these, most of them have met my target. IQ Group and Bursa might still go higher. MYEG still in strong weekly uptrend and this is more for long term investing. The rest are trades. Mega First is still in the process of forming some continuation pattern. All the above stocks are in an uptrend either forming a box pattern, an ascending triangle or breaking a nice downtrendline.

I like stocks that are trending higher in the weekly and daily charts. There is always a reason why stocks trend higher. That's because they are good. A stock that is trending higher tends to go higher.

I firmly believe that a trader or investor should focus on as few counters as possible that fit their investing/ trading criterias. Maybe 5-10. Know their FA and TA in and out and the news and master them really well. The rest are very tempting but its best to trade or invest in the best quality setups.

Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com

Charts with the investing.com logo are courtesy of Investing.com powered by Trading View

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