Market Outlook as at August 12, 2010

The last few days of correction may cause some investors to raise the question of how sustainable in the current rally. Looking at Chart 1, we can see that the 50-day SMA line has already hooked up and this is an indication that the market is likely to go higher in the near term. The current correction is not unexpected since the market has staged a powerful rally off the low of 1243 (on May 27) to hit a high of 1370 (on August 3).


Chart 1: FBM-KLCI's daily chart as at August 11, 2010 (Source: Tradesignum)

Looking closely at the daily chart of FBM-KLCI, we can see that the index has very strong support at the 50-day SMA line (at 1336). In the past 1 year, FBM-KLCI broke below the 50-day SMA line only twice- in January & May this year. I think the 1336 level would like to hold up FBM-KLCI and represent a good entry level into the market. However, if the level failed, then the market may correct further.


Chart 1: FBM-KLCI's daily chart as at August 12, 2010_12.30pm (Source: Quickcharts)

Based on the above, we need to watch the FBM-KLCI closely as it comes close to the 50-day SMA line at 1336.