STOCK MARKET OUTLOOK (For Apr 14, 2011): CONSERVATIVE INVESTORS SHOULD SELL ON RALLY .IF STOCKS CONTINUE HIGHER & KLCI CLOSES ABOVE 1541, RE-ENTER LONG.
On Wednesday’s close the KLCI was up by 9.67 points or 0.63% at 1535.59 on low volume of 1.17 billion shares traded. Advancers led decliners by 610 to 204 with 265 stocks unchanged.
1. Yesterday we mentioned the possibility of a rebound if the Dow fell by double digits.
2. True enough our stocks were traded lower in the morning after Dow fell 117 points on Tuesday. But in afternoon trading, buyers returned and pushed many stocks that have plunged from last Thursday through to Monday and Tuesday to higher grounds (higher than Tuesday’s open or high.
3. At the end of yesterday, our KLCI had closed back above Tuesday’s low for a “piercing line” pattern. Some stocks like CIMB even closed above Tuesday’s high. DRBHCOM and FABER, VITROX had good turnarounds via “engulfing bullish” patterns. Some had “piercing line” patterns for e.g. KUB.
4. Because yesterday’s close was significantly bullish, there is a good chance buyers are still a force to be reckoned with and prices may not fall further. That is the good news.
5. As such, if you have stocks that have not hit your “stop losses” levels, do not exit yet.
6. The bad news will be if price rallies fizzled out today and price stop rising further but instead profit taking sets in again.
7. So how to you trade today?
8. If you are conservative, it would be prudent to “sell on rally” in the morning. This will be based on the technical view that our stocks cannot breach Monday’s high price (that was when most stocks sell-down started).
9. If you are aggressive, “hold” onto stocks as (1) many stocks and the KLCI are still abovetheir moving averages which suggests “bullishness” and RSI, MACD are still bullish. (2) You may even want to re-enter buy if you have been stopped out.
10. The aggressive trader would argue that a rally in the works from today till Monday as it expects the BN government to win at least a simple majority returning it to form the state government.
11. If KLCI rallies and close past 1541, then the aggressive traders would be right in their reasoning.
12. If you subscribe to the aggressive trader’s logic (which is backed by positive technicals anyway) then re-enter stocks that have been stopped out like KIMLUN, MAYBANK, TA, LINGUI, INCHKEN, MAHSING, PARAMOUNT, SAPCRES, TEBRAU, AIRASIA, FABER, GENTING, POS.
13. The ringgit strengthened to 3.0230 from 3.0260.
14. Tuesday’s long black candle’s gap would be viewed as close and exceed above 1541. Hence our call for a re-entry above 1541.
CONCLUSION: The local index rebounded strongly. We may be saved by this rebound. Mosttechnical indicators are still bullish. You could re-enter buy if you are aggressive, especially above 1541.
