Political tsunami, stock earthquke, opportunity in disguised.

8/March/2008 marked a very important date in the history of democracy of Malaysia after 50 years of independence. On this day, the Malaysians witnessed what was described as the political tsunami in Malaysia where the ruling party was first time in the history of Malaysia denied 2/3 majority, and saw five states falling to the oppositions. Of course on the following Monday, 10/3/08 the KLSE also experienced a very strong earthquake that sent the KLCI -130 points down (-10%) to 1166, which triggered the circuit-breaker for the first time in the history of KLSE. The market was suspended from trading for one hour. When market re-open, the KLCI plunged further down to 1157 which saw the selling climax in term of volume. As seen on the KLCI chart, the low of 1157 has seen the completion of the target when the neckline of the Head-and-shoulder chart pattern was broken (indicated by the pink color line).

The market rebounded on Tuesday to close at 1206. On Wednesday, the market gapped-up 36 points on opening in response to DJIA's 416 points gain overnight, however, the bear immediately surfaced and sell down the market, and KLCI closed the week at 1194.84, down 101.49 points week-on-week.

The question on everybody's mind now would be "has the KLCI seen the worst?", really no one knows. From the chart, it has completed the Head-and-shoulder's target, however, it may retest the low of 1157, if that was not defended, then KLCI may further test the support at 1140. The market may see strong support at the 1128-1140 level. How far down the CI may goes will depend on the performance of the DJIA in the near term. The KLCI is now just doing a catch up with the DJIA and the rest of regional markets which have started their down trend move since mid October 2007.

The chart of DJIA shows strong support at the current level of 11,600 -12,000. From the charts, one can see that regional index like the HSI is following the DJIA closely, both indices are showing consolidations at the current level. If the support level of DJIA at 11,600 cannot hold, then DJIA may see further downside to 10,700. In that case, we may see the KLCI tumbling down to the 1130 or even 1090 level.



During a down market, it is full of fear and investors always act irrationally, this may be opportunity in disguise, and the best time to buy quality stocks at discount. However, do not try to catch a falling stocks, it is like catching a falling knife. Let the price settle first, we may not buy at the lowest, it is better to see the bottom first.



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.