Friday, January 02, 2009

At The Juncture

KLCI Daily Chart

Today's movement has put KLCI at the downtrend line. It could either breakout to 950 to 1000 or collapse and continue the downtrend. I think that because of the feel good effect of CNY, KLCI will move up. My system doesn't allow me to trade yet. So still sitting on the sideline. My interpretation for the various sectors shows sign of stabilizations:
Malaysia Longterm Midterm Shorterm
KLCI Down Neutral (+) Neutral
Finance Down Neutral (+) Neutral
Construction Down Neutral Up (+)
Plantation Down Neutral Up
Property Down Down Neutral
Mesdaq Down Down Neutral
2nd Board Down Down Neutral

I will only start to trade when the midterm indicator shows "up" and the longterm indicator shows "neutral".

If you are only able to play "long" only, I'm sure that you are looking for positive news to convince yourself to buy while ignoring all the negative news. You must be aware of this danger because it does not allow you to judge the market objectively.

I'm still in the bear camp eventhough a lot of people has gone into neutral or bullish now. I guess I'm influence by the uber-bear news that I follow. For instance, the Market Ticker blog by Karl Denninger. His arguments sound logic to me as compared to other economist or experts. I encourage everyone to read his blog because the US still leads the way in the world market. Thus, understanding what is happening in the US will help you in playing the Malaysian market.

If you believe that the US is going into a depression, then it is best to sell into this rally because the Chinese or the Indians will not be able to safe the world. From the technical analysis, KLCI has broken its uptrend and unless a miracle happens, I expect more pain to come.

My point of view is that it is not worth it in playing the dead-cat-bounce game. Why? If a good fund manager cannot avoid losing 40% after a strong bull market, what is your chance of winning in a bear market rally? The period in this bear-market movement is considerably shorter while the movement in points in much smaller as compared to the bull market. If your capability allows you to capture 50% of a movement, imagine the amount of points you are able to capture in a bear-market rally. It doesn't give you much room for error.

Of course the brokerage firms encourage you to play this because it is their interest to generate commission. The brokers need to survive. But we should not be charitible in ensuring their profits.

Do not be greedy in chasing that 30-50% profit. What we want is the 200-400% profit in a bull market. The big money is made from the big moves, not many small moves.

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