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2011-09-12

Mini symmetrical triangle formation

Our Malaysian bourse will probably carry on bouncing back and forth amid light trading activity while waiting for fresh leads to surface. From a technical perspective, the FBM KLCI is still facing downside risks with no signs of a trend reversal yet.

The benchmark index fell first (to a low of 1,453.26) but recouped most of its initial losses subsequently to close at 1,469.12 last week. This was 5.0-point or 0.3% lower than where it was two Fridays ago. Finishing mixed through the week were the FBM 70 Index (-0.7%) and the FBM ACE Index (+1.4%). Reflecting a dearth of interest from investors, daily average trading volume dropped to 710.0m shares (from 873.3m units) valued at RM1.3b (RM2.0b the previous week).

Foreign fund flows should be dictating Asian equities performance ahead. Foreign buying and selling activities were fairly mixed last week with: (a) net foreign selling in Thailand, which amounted to USD117m, when the equity bellwether dipped 0.3%; (b) net foreign buying of USD70m in Indonesia as the stock market gauge ended up 4.1%; and (c) a fairly balance sum of +USD18m in Philippines, which saw a 1.1% index drop This follows a broad sell-off in Aug, when foreigners sold more shares than they bought in: (a) Thailand (a net outflow of USD1.4b versus a net inflow of USD1.2b in Jul); (b) Indonesia (minus USD989m versus a net buying value of USD607m in Jul); and (c) Philippines (minus USD115m versus +USD214m in Jul). Our
Malaysian share exchange – which does not publicly provide weekly information on foreign fund flows and after having registered a net foreign selling sum of USD1.3b in Aug (versus +USD0.2b in Jul) – could be tracking the foreign funds patterns in these countries going forward.

Hence, domestic news flows may not matter much for stock market investors at the moment. On tap thisweek include: (a) plantation statistics (on production, exports, inventory etc) for Aug to be out Monday; and (b) corporate financial announcements by the likes of SP Setia (on Thursday) Technically speaking, downside risks remain for the FBM KLCI as we expect any upward movements to be capped by a negative sloping trend line. Our first two resistance hurdles are kept at 1,495 and 1,530, respectively.

The chart also captures a mini symmetrical triangle formation, which is usually considered as an intermediate continuation pattern. As it approaches the apex of the triangle, the FBM KLCI could break out on the downward direction. A resumption of the bearish momentum may then force the benchmark index to plunge towards the support lines of 1,465 and 1,435 ahead.

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My investment with RM5,000 initial capital have been growing since 2005.I found the stock market appears confusing and complicated, but it is most definitely based on logic "supply and demand". However, the laws of supply and demand as observed in the markets do not behave as one would expect. To be an effective trader, there is a great need to understand how supply and demand can be interpreted under different market conditions and how to take advantage of this Off Market Transactions in KLSE.

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