Technical rebound

The world market rebounded strongly on Friday, thanks to the concerted effort by the six central banks and the U.S. government on the bailing out of AIG, the largest insurer, and the market responded strongly. However, that may not be the end of the U.S. financial crisis yet, as how many more big trouble case are there is still to be uncovered. For the DJIA, It is just a technical rebound for the time being, and back to its sideway consolidation zone of 11,000 - 11,800. It need to be able to break above the 12,000 mark before any meaningful trend change and bull run can take place.
As for the KLCI, the index has tested its downside targets and rebounded from the lower trend channel support strongly, forming a long lower shadow doji star reversal pattern. This reversal pattern was confirm on Friday by a bullish candlestick. The bullishness may continue, however, the overhead resistance will be seen at the 1038, 1050 and the 1070 levels.

Technically, this is just a technical rebound which could be shortlive, and maybe view as a good opportunity to get out. The down trend of the KLCI has not change until the CI can work its way to break above 1100 level.

As it was mentioned before, there are always opportunities during a crisis. Those who have followed the market closely and understood the market signals of smart-money accumulation would have made some quick profit on many counters.

Anyway, trade carefully with your stop loss always in place, you'll be alright. In trading, it is not how much one can make per trade, it is how consistent and how long you can last in the game that counts.

On track

One month ago on 20th Aug'08 I posted the chart (on the left) and the possible target of KLCI, and I mentioned that "Based on the chart pattern formation and the projection, a likely bottom may be around the 1014 to 990 level, which is actually not that far away now. A major panic that cause by the success of the Anwar's 916 plan can easily push the index down by few tens of points." Today, on the 17092008, Anwar's plan has not materialized, however, KLCI already move on track to its target level.

KLCI closed at 1002.99 dragged down by banking and plantation stocks. It is now on the verge of breaking the 1000 mark, a major psychological support level. Based on the trend channel projection and the horizontal support level, the KLCI may continue to head towards the downside target of 980, 970 and 950.



The DJIA is really looking bad with all the trouble going on in its financial sector, it broke the important psychological support of 11,000 and even pierced right through the 10,800 support level to close at 10609. Based on the same projection technique, the downside target of DJIA will be at the level of 10180 and 9740.

Back to the beginning

Took a break from writing to observe the market. Situations have not change very much. Since my last posting, KLCI has not moved anywhere, it was trapped between the recent low of 1064 and the high of 1100.50 registered on 29 Aug '08 on budget announcement. It losses steam very fast, as mentioned before that was just a technical rebound. Foreign fund continue to sell down on blue chip shares has dragged down the KLCI, we are just at the edge of retesting the 1064 low, if this is breached, which is likely to happen, will see another round of selling that would bring the CI down to 1048 level. The government is trying hard to prevent Anwar's 916 plan from happening, but would that stopped the CI from sliding down? The fear factor is dominating the market, many are just selling to stand sideline. Volume has remained very-very low in the 300 million shares region, showing a lack of interest from the retailers, however, the smart-money or the big-boys are happily collecting from the fearful sellers.

The charts of all other major bourses show that the market has come back to where it begun. The chart of DJIA and S&P500 of the U.S market shows that they are in a sideway market, one day up and one day down. For the time being the DJIA support at the 11,000 is crucial, and the ultimate support will be 10,698. If the is breach, the whole world will have another knee-jerk, and DJIA will go back to where it begun, the is the 10,000 level.

Taking a breather

(Click to enlarge image)
Since the last posting, the KLCI has plunged further by another 50 points to a low of 1064.58, led by heavy weights such as SIME, IOICorp, Commerz, Maybank, KNM, etc. This shows that the foreign funds are dumping the local stocks in view of the uncertainties lingering the local scene. As mentioned before, the KLCI came down to test the critical psychological support at 1100, no defense were seen there and the next level of support at 1189 were also broken easily. This shows that the foreign fund just want to cash out and local fund was just happy enough to let share price come down to collect at low level.

The falls of KLCI eased off slightly at the 1065 level, and the KLCI rebounded slightly today in line with other bourses in the region. Daily volume traded over the last few days was miserable at about 300 plus million shares a day.

Market was filled with gloom and doom. The listing of Perwaja today was at a wrong timing, where the share was opened at 2.80, -0.10 below the IPO price, the share was sold down to a low of 2.34 before closing at 2.48, -0.42.

The question on everybody's mind is where is the bottom? Seriously, the bottom is not found yet. Based on the chart pattern formation and the projection, a likely bottom may be around the 1014 to 990 level, which is actually not that far away now. A major panic that cause by the success of the Anwar's 916 plan can easily push the index down by few tens of points. What to do then? Get ready your ammunitions, as great opportunities are always found during a crisis, do your homework well so that you know what to catch.

At the mean time the KLCI may have some rebound, however, any rebound is going to be short live, as players will sell into strength to cash out. This is not the time to buy for long term yet as the bottom is not seen yet, one can only trade very short term for technical rebound provided you can read the market well, and catch the rebound right on dot. Otherwise stay sideline.





Disclaimer: The above is not a recommendation to buy or sell, all suggestions mentioned are purely for academic study purposes for our trend trader club members only, and the author may have personal interest and position in some of the examples mentioned. Any losses incurred if you were to trade base on the study examples above is solely your own responsibility. Do consult your dealer before taking any action.

Continued weakness

Since the last update a week ago, nothing very exciting happen, except for the Beijing Olympic Games 2008 which open on Friday 080808. Somehow the Chinese loves the figure "8".

Bursa Malaysia is experiencing continued weakness with the KLCI sliding down to close at 1118.78 yesterday on very thin volume of 292 million shares traded. Plantation stocks continued to weigh down on CI with IOICorp closing below 5.00 at 4.82. The CI has come to close at a very crucial support level now, as this was a strong support level previously. A break of this support may see the CI sliding further to test the critical psychological support of 1100. The low volume indicates that the buying interest is very weak, hence, the market may continue its current trend.

Our government has formed a national economic committee to strategize on measures to boost the economy, and hopefully the coming budget can help to inject some life into the market.

Continue Down Trend

The KLSE saw another round of sell down on the plantation stocks yesterday, with IOICorp -0.50, SIME -0.30, KLK -0.80, PPB -0.25 dragging down the CI to close at 1128.86, -19.82. The falls of the plantation stocks was anticipated in light of the falling commodity prices with crude oil down to an intraday low of USD118. This has cause the recent short term uptrend or rather technical rebound to end its uptrend at 1164.

As mentioned in last week's posting, the 1160 level of the KLCI is an important level to hold, if this fail, more downside will be anticipated. As of yesterday's price action, the CI has made a 50% retracement of its recent run up, the critical support is at the 62% level of 1117 which happen to be the strong support area of the previous down trend. If this level is violated, full downside is expected, and of course the 1100 critical psychological support is of utmost important. There after we are talking about downside targets of 1090, 1050, 1030 and even 980. Numerous factors can bring down the CI, somehow.

Technically, we can see that 1164 was actually a strong resistance area with the down trend line blocking the way and the long term MA are still pressing the price downward. However, if one do pay attention to individual stocks, one would have found that there are stocks that are not falling in tandem with the market, bucking the down trend. Perhaps these are the opportunities during a crisis. The dump money is selling now, and the smart money is accumulating. Try to spot signs of accumulation. For the retailers, money and risk management is most important at this kind of uncertain time.

Mental Rehearsal Helps You Cope

These days there is no sure thing when trading the markets. You may have a good chance of winning, but the next unseen catastrophe may be around the next corner. Who knows what will happen next? Well, if you are the typical trader without the right connections or insider information, it’s almost impossible to know with exacting certainty what the Fed will do, what institutions will do, or how the media will report it. After a few years of seeing new highs, we are now seeing the Dow trending downward each week. Whether you are a short term trader betting on the daily or weekly trend or a long term investor worried about what will happen next year, it may be difficult to execute a trade when the time comes. You may feel calm during the planning stages, but when it comes time to put your plan into action, you may get nervous and flustered to the point that you can’t pull the trigger.

If you freeze at critical moments of trading, it’s understandable, especially during uncertain times like these. You can intellectually understand what to do, but when it comes time to execute the trade, you can't do it. It is much like knowing how to make a golf swing in the abstract, but being unable to do it while playing an actual round of golf. When the psychological or financial stakes are high, you may choke, and all the preparation that went into your plan may be of little benefit if you cannot put your plan into action at the right moment. You don't have to let anxiety and uneasiness get the better of you, though. You can use the technique of mental rehearsal to cope with emotions that may thwart your ability to trade effortlessly.

The Problem

When your money is on the line and you are not sure if you will lose precious capital, it may be hard to execute when you need to. A sudden fear reaction may catch you off guard and may seem mysterious. When caught off guard, the uncertainty of the markets can impact your ability to trade calmly and rationally. When you anticipate your potential fears, however, their potency will be greatly diminished.

Mental Edge Strategies

One of the best ways to cope with unexpected anxiety-provoking events is to use mental rehearsal. Mental rehearsal consists of pretending a series of events is unfolding occurring while in a safe, quiet place. It's much like making a videotape of a set of market events and replaying it in your head. For example, you can imagine having to make a profit during times of extreme uncertainty and feeling that you are not sure of what will happen in the long run. If you are the kind of person who would find making a trade while afraid of what will happen to your stake, you can try to practice making the trade effortlessly through your imagination. By replaying the events in your head at your own speed and under your own terms, you can learn to control your fear response. When you first replay the mental “movie” in your head, you may feel anxiety and apprehension. Your breathing may be heavy and difficult. When this happens, you can "pause" the "video" and practice relaxation exercises. Take deep breaths and relax your muscles. By replacing anxiety with feelings of peace and relaxation, previously stress-inducing events will lose their potency. Through practice, you will soon be able to replay the movie without stopping and without feeling any sense of anxiety or uneasiness. Eventually, you will be able to face actual stressful events during the trading day with a calm and relaxed response. You can imagine yourself trading under the most chaotic conditions with ease. You can imagine entering and exiting a trade calmly and effortlessly. By mentally rehearsing the event, you can face incidents that would be difficult to address during actual trading conditions. Rather than facing them in reality, and repeatedly experiencing stressful, paralyzing emotions, you can practice coping with approximations of the event until you can trade decisively and effortlessly. Don't let stressful emotions adversely impact your trading. Cope with them through mental rehearsal and neutralize them. Soon, you'll be trading effortlessly with the proper mental edge.

By Michael S. Shopshire, PhD. Mental Edge