Technical Analysis Of KLCI : January 2018 Market Outlook

With the KLCI breaking into new highs, the next question that faces the Malaysian investor will be whether KLCI can make a new all time high. All the indications are pointing that it can.

Thanks to the surging US stock market and oil prices, the Malaysian stock market has rallied as well, albeit a bit lagging.

So can KLCI really make record highs?

If you asked Obama, he will say "Yes we can".

If you asked Trump, he will say "Make Malaysia Great Again!".

With a strong flow of foreign funds into Malaysia and a general election coming, perhaps we really "Can...Make Malaysia Great Again!".

Let's look at what the charts are telling us...

January 29 2018

The daily chart of the KLCI is nothing short of spectacular.

As you can see above, the KLCI had a fantastic bullish run since December 2017. I pointed out in my last analysis if KLCI can stay above the 2nd support area, it will have to go up. I also mentioned a possible flag pattern.

A flag pattern is an extremely bullish pattern that appears in a stock or index that is experiencing a massive bull run. The flag is just the middle of the move, so if the pattern really materialize in the KLCI, we are looking for a super bull run that will shatter records in the near future.

It sounds almost impossible when you look at the KLCI that has been lagging world markets for so long. But it now looks more achievable. All I can say right now is that we should look at the 1st support area, 2nd support area and 3rd support areas.

If KLCI can stay above the 1st support, KLCI will have a nice run up to the old highs.

With so many layers of support, it will not be easy for the bears to creep in anymore. So the path of least resistance for Malaysia is up.

Next I want to show you the weekly chart of the KLCI.

Our Malaysian stock market has recently broken out of a weekly triangle. When a stock or index breaks out of this pattern, it is not impossible for it to climb up to the previous highs and break the ceiling to make a new record high. It is only a question of time.

Even if we take a measured move target from the weekly charts, the target is somewhere in the old highs area. As long as the KLCI drifts higher near support and does not correct, it will make new record highs.

Furthermore, I believe the two rallies that form the upper trend line in the triangle has absorbed enough supply from the previous high. Thus, we probably have dealt with all the supply and therefore the path to record highs is less problematic.

The next extremely encouraging sign is the Malaysian finance sector.

The finance sector represents the blood line of Malaysia. As do so many countries. Very rarely will a bull market materialize and continue without a country's finance sector shooting higher. In Malaysia's case, we can say it is leading the market now.

Notice how the Malaysian finance sector broke out of the old highs and reach a new plateau? The old highs is the new support now.

I can tell you for certain that if the Malaysian finance sector stays above this support area, KLCI will have nowhere to go but shatter the old highs to make a new all time high.

Let's take a look at the short term outlook for KLCI.

For that, we will look at the 60 min chart of KLCI. Recently, it broke out of a 60 min ascending triangle. Short term players should be bullish on KLCI as long as it is above its rising 60 min 20 MA and 50 MA.

For those of us who are wondering why there is so much foreign funds coming in, we need to realize that foreigners think very different from Malaysian investors.

One of the things that they will look for is the etf of a country. For Malaysia, it will be the EWM which was created by Blackrock in 1996. It is one of the longest surviving ETF in the world.

Recently, EWM broke out of a weekly ascending triangle. You can see that the weekly trend is up and things look very appetizing for the foreigner. Which is why they keep on buying.


What is the KLCI likely to do? Let us look at some charts and see what it is telling us.

The KLCI has moved up quite a lot since December 2017 and everyone expects a correction. A correction can happen in two ways. A sideways type of correction or a decline type of correction.

We hope that the correction will be sideways as it will do the least damage to investor's account.

Let me try some Bahasa Malaysia

Bursa Saham KLCI telah naik meletup sejak Disember Dua Ribu Tujuh Belas. Semua orang jangka ia akan mengalami pembetulan.

Pembetulan berlaku kerana KLCI telah buat banyak salah naik cepat cepat tak tunggu semua orang. Ia tidak tunggu mereka yang tidak naik sampan awal awal. Jadi pembetulan dalam aliran menaik (uptrend) adalah peluang keemesan untuk beli saham lebih murah.

he he...

Saya akan coba membuat analisa setiap hari jika bisa. Sila menyegarkan pelayar internet anda untuk melihat analisa terkini.

Well, it has been more than 15 years since I write something seriously with Bahasa Malaysia. I reckon I can still produce a piece in BM but for the benefit of non BM readers and many who are not from Malaysia, I think I shall revert back to English.

January 22 2018 Monday

Ever since KLCI made a recent high around 1840, it has been trading more or less sideways. This is the kind of environment that can hurt a lot of retail investors or traders. The reason is the bullish momentum in most stocks have slowed down.

Some stocks will trade sideways but some very overbought and hot stocks will collapse quickly. You can see it in many oil stocks like Hengyuan, Sino Hua An and UMW Oil & Gas. Even tech stocks like Inari Amertron suffered a quick correction that brought many investors to their knees. 

Thus it the nature of the stock market.

It is a very dangerous place for those who are not well equipped with the knowledge and discipline that is needed. After all, the stock market is the most difficult place in the world to make easy money.

In my previous analysis of the KLCI, I mentioned that if KLCI can stay above the 1810 area, it means that the index wants to correct by trading sideways. So far it is following this script.

This is something good as it may set up some kind of a continuation pattern.

At this moment, the seasoned trader will start to anticipate a flag or a consolidation or some kind of continuation pattern. Ideally I would like to see a breakout as it hits the rising 20 MA. Which gives it more rest before it propels higher.

That is the technical catalyst that may send Malaysian stocks higher. The other thing will be the looming general election. The Malaysian stock market has a history of going up very well before the general election.

So, if we have technical catalyst as well as a sentiment and psychological catalyst in the form of an election rally, we just might be able to see an explosion higher. That is something to keep in mind.

I would just like to show you the daily chart of the Malaysian finance sector.

The sector is breaking out higher and if this continues, it will be very beneficial to the Malaysian stock market. There is ample support which is very strong below, so I suppose we can say that the path of least resistance for it will be up.

Although the KLCI has not been able to make new highs like other world indexes, its Mid 70 has been doing quite well. It ran up very well and had a correction but today it broke out of a downtrendline as it neared the rising 20 MA. Things should be good for stocks in the index if it is able to stay above the 16200 area.

The above is the 60 min chart of the Mid 70.

There were so many bullish signs. It broke above a 60 min ascending triangle. Then it broke above a downtrendline and it is about to have a 60 min bullish cross. All this are the signs of a trend change. So, if it can stay above the 16200 area, the correction is over and we can hope for more upside for stocks in this index.

January 16 2018 Tuesday

Today there were quite a lot of sell off in stocks in the KLSE. The index went down but eventually rose back up to form a bottoming tail pattern.

Bottoming tail at support areas can be very beneficial but in the context of KLCI it just tells us that KLCI wants to correct sideways instead of down at the moment.

The chart above is the daily chart of the KLCI.

Any big run up will eventually need to be corrected. At this moment, I believe that as long as KLCI stays above the support line we have drawn, KLCI will correct sideways instead of going back to the support area around 1780.

Snapshot from investing.com

Today we will be looking at some sectors.

As you can see above, many sectors were down. The only positive ones were the KL Property sector, the construction sector and notably the technology sector.

You can find the above sector summary from Investing.com's Malaysia Financial Markets Page.

Sector analysis is very very important as 75% of stocks in a sector will move based on what the sector is doing. Let me show you the chart of the tech sector below and how it affected tech stocks.

The chart above is the daily chart of the Malaysian tech sector.

It broke out in December 2017 and shot higher bringing many Malaysian tech stocks higher. The sector became too hot and soon formed a bearish chart pattern called the bearish engulfing pattern. This was a warning sign to Malaysian investors that a correction in tech stocks is around the corner.

Which is why you will see that many tech stocks corrected and fell. When the sector corrects, break outs in the individual stocks may not work very well.

That is the importance of studying the sector as well as the major indexes.

Currently the tech sector has corrected to an area of support. It formed a bottoming tail which is something good to see in a correction. Furthermore, it is at the rising 50 MA support.

Therefore, we should monitor the sector for any bullish reversal to the upside. Traders can also look for tech stocks that might bounce up and give a nice swing trade.

That is the art of trading.

We look at individual sectors and then zoom into individual stocks.

The finance sector in Malaysia also looks very healthy. It is behaving better than other sector with just slight corrections. There is a very strong area of support below and therefore I believe the path of least resistance for finance stocks is up. 

When the finance sector does well, it will also benefit the major index KLCI itself.

I think some consolidation and then meeting the 20 MA might be good to setup a consolidation breakout of the sector.

Another sector that is very strong at the moment is the consumer product sector. This sector has broken out of a long consolidation and thus the top of the consolidation will now act as an extremely strong support level. I believe there is more potential for consumer product stocks to go higher.

Any correction to the support area will also present a good opportunity to buy consumer product stocks cheaper.

The Trade & Services sector has experienced a rapid move up and currently is in correction mode. But do note that there is some pocket of support on the left. Therefore, as long as this sector stays above the box I have drawn I believe the stocks in this sector have an opportunity to move higher.

The FTSE Bursa Malaysia ACE index also had a tremendous run up. After forming a reverse head and shoulders pattern and breaking above a downtrendline, the index shot higher. Bringing along with it many stocks in the index higher. As it met the former highs, it also corrected along with other sectors.

I see a bottoming tail forming in this sector and lets hope that this shows us slowing selling momentum in the index.

Finally, I want to show you the weekly chart of the USD/MYR.

I have actually highlighted the topping of the USD/MYR last year. Case Study : How the USD/MYR pointed to a big bull run in the Malaysian stock market.

The pair formed a big monthly double top and then broke below a weekly uptrend line. From there it moved lower. I believe the decline is not because of the strength of MYR but rather the weakness in the USD which has also weakened compared to other world currencies.

I have drawn the support areas to watch on the chart. If the downtrend in the daily chart continues, the USD might break through those support areas.

Happy trading!

January 12 2018 Friday

The strength in the US market which shot up by more than 200 points help the KLCI to find some support at the line I have drawn below. I think this will be a very crucial area to look at.

As mentioned above, corrections can happen 2 ways. We certainly hope KLCI's correction will happen by trading sideways. But if you look at the weekly charts, things are looking quite toppish.

The weekly charts below show that the stochastics are quite overbought.

We ended the week with a topping tail kind of pattern and this might hint of a reversal. Anyway, with the bullishness in the US market,we certainly hope that KLCI will trade sideways instead of correct. Therefore, the 60 min support line I have drawn above will be very important for us to take note of.

January 11 2018 Thursday

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