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Well, KLSE FBM KLCI did try to break the previous high at 1270 (as at time of writing this today, KLCI is gaining 5 pt) , in fact it did break it. It is not convincing though. The last few days' candlesticks and volume are not conforming that it is a convincing break-out.
Also, many technical indicators show the market will take a breather for a short while.
Divergence signal from indicators such as : RSI, MACD, Money Flow Index.
They are telling : "The last few days uptrend is not convincing and could be ended soon"
Stochastic Oscillator signaling, "It's overbought now, correction coming soon".
So, I am expecting correction next week with 1,235 pt as the support/pivot point.
Let's get a quick refreshment on brokerage, trading cost and break-even price:.
Standard trading cost:
1.BROKERAGE FEE: at 0.70% for below RM100,000 amount of transaction (min 0.60%).
at 0.30% for transaction of RM100,000 and above
2. CLEARING FEE: at 0.003% per transaction limited to maximum RM200 per transaction.
3. STAMP DUTY: RM1 per RM1,000 amount of transaction or fractional part.
Minimum brokerage fixed rate is RM40 : for transaction estimated below RM5,714.29.
If your transaction is below that amount, your brokerage cost (in percentage) will be higher than 0.7%
Note: brokerage for same day buy and sell trades at 0.15% of transaction.
For cash up front:
The brokerage charge is negotiable, thus it can be varied among the stockbrokers. Minimum brokerage rate RM40 doesn't necessarily apply but it is the commonly practice. Same clearing fee and stamp duty apply.
Online/Internet trading: brokerage is negotiable, thus it can be varied among the stockbrokers. Minimum brokerage rate RM40 doesn't apply. Same Clearing fee and stamp duty apply.
Due to competition among the stockbrokers, brokerage for online trading can be very varied. Stockbroking house could have promotions with special brokerage rates from time to time to entice you. You will see zero brokerage rates for the first year of registration offered soon.
Expect a range from RM8 to RM28 for minimum flat brokerage cost. You need to check with stockbrokers. Get the info on:
1. For how long the special rate you are entitled to, could be just a short while.
2. What is the minimum brokerage cost. (very important especially if you trade in small amount : it can be very costly)
3. What is the rate for intra-day trades.
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Most long term investors do not be particular so much about brokerage since they are looking for big profit in the long run and they don't buy and sell often. But for traders and scalpers with frequent trading activities, brokerage cost will affect a lot. Thus, traders need to be particular about brokerage and trading cost.
Traders need to estimate the break`even price before they sell. To get the break even selling price you need to include the brokerage, stamp duty and stamp duty. You need to calculate the cost twice: buying and selling. You need to calculate fast for fast decision. To make your life easier, there are tools to calculate your break even cost that come with some online trading platform. There also some PC software that can do that.
Note that most stock break even calculators consider the shares purchased as part of investment cost.. It just perception. Traders consider shares bought as inventory to turn over before been sold. While for long term investor, shares in hand are assets.
You can try KLSE Calculator (a free software) for calculating trading cost, profit/loss and break even price. Download it at klse2u.com/klse-calculator
Last Friday, after about two weeks of profit-taking mode, Kuala Lumpur Composite Index shows a weak sign of re-bouncing at the pivot zone around 1,235 pt (see chart below). However, I don't think it strong enough to say that profit taking mode is over. This time it is stronger than previous correction. I expect KLCI will stay in correction mode for more days.
On longer term outlook,`it's still too early to say past days correction as the beginning for a major bearish trend. We need to wait at least to 1,200 pt level level which is more suitable level to watch for early signal (1,170 is more significant). A break down of these pivot/support level, then we can be very suspecting of.a longer bearish trend.
Much more significant sign is when the current profit-taking is over and how will KLCI climb back, trying to break the resistance of 1270 pt. That high is within significant Fibonacci cluster zone (around 1245). Will it be a lame attempt? Will it be just a short, weak dead-cat-bounce? Failure to break 1270.44 pt will be a significant signal for persistence bearish trend.
Below: FBM KLCI daily chart 
KLSE Construction Stocks in play throughout 2010?
Last week, last few trading days displayed some interest in buying with the breaking of the recent high 
(1,231 pt) but it was not strong enough for a sustainable break away. As said in my previous blogpost, my best target for now is 1,250 pt, not that far from the last KLCI losing (1,233 pt). See KLSE Composite Index Daily chart on the right. No difference anyway, the important point is that the market does seem exhausted and any up-climbing will make it more exhausted. It need new money getting in to make it climb higher. Not much to expect, except the market will display more weakness in the coming weeks. Not that previous weeks were exciting but it's going to be more dull weeks.
I don't have anything new to say on longer term view. I will sound like repeating myself. I suppose even big player need to allow the market to correct more before another round of buying spree. Especially when there is no other big player around. The correction is needed for the main up trend (since early this year) then only we have a new main bullish trend to emerge. Not just in term of technical, but that also will push down e.g. stocks' P/E ratio and should attract more participants and hopefully foreign players, this time. Add the fact the Ringgit on the low side, it shall be 'killing two birds with one stone opportunity' for them.
This month, Malaysia Budget 2010 shall be tabled on 23rd October 2009. As usual, the market will be quiet a week prior to that because it anxious of what will the budget will be. Then it will be quiet or down for another week after that, it either because it not as what they hope it will be or because it just what they already expected. Save only for when there are nice surprises.
Also, many are anxiously waiting to see how October going to end. Many of them liken the current global economic crisis to the 1929 Great Depression. In that year, on October 28th and 29th (Black Tuesday), DJIA plunged 29%. When DJIA plunged 23% within two days, the result was, as you know, a jump in suicides rates. To comfort you, since 1998, October is actually one of the best months for DJIA. The 1929 was kind of started in October 1929 and what we are having now is already about two years passed through. Also, if stock player already expect it then it will not happen because they already been in selling mode long prior to that.
As at time of writing KLCI was down 9.8 pt to 1027.9 pt. The bearish global stock market in the past couple of weeks could triggered the mood. However, I think there should be slightly upward bias toward end of the week. After the long festival celebration, the player already came back. Malaysia multi-billion economy stimulus package on the hype again and should provide the much needed lead in the market. More details on the recently announced multi-billion-ringgit government projects will be announced. Construction sector should be in the trend again. Notable also the hype on Maxis re-listing, easily could be the IPO of the year especially with this year's dismay IPOs first day's performance.
Anyway, I will say any major correction should be most welcomed. Read my previous blogpost on longer term bearish outlook. Many of us on the sideline now, any major correction will create a new starting ground for a new major bullish trend.
Any upward trend should meet current resistance and target zone around 1,250 pt.
Important coming event is Malaysia budget 2010 which will be tabled on 23rd October 2009. Heard there will be surprises.
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US market : The rally in U.S. stocks, which stumbled in recent days on worries about the economic recovery and continued government stimulus, will be tested this week by crucial data on growth and jobs. Read http://finance.yahoo.com/news/Stocks-rally-to-be-tested-by-rb-1100260512.html?x=0&.v=1
Hari Raya Aidilfitri festival celebration and holiday is just around the corner. Expect slowdown and lesser volume. Retail investors that need money before raya by selling stocks, they need to do that latest by Tuesday in order to get the cash by Saturday. By the way, since not many of retails now, I don't think that will effect much. Big funds don't need to raise cash for raya. It is just the holiday and celebration mood of fund managers that shall cause the easing. They should be back with rejuvenated buying mood after raya.
First on the longer term view, my bearish outlook still the same. On the short-term outlook, I find it interesting. My last blogpost here said KLCI will attempt to break recent high of 1,196.46 pt and will fail. Well, the first attempt just touched high of 1,178.77 and then corrected. After that short correction, it then rebounded and as at 8th of Sept, it already closed higher than 1,196.46. Now, with higher low on correction and with last 2 days white candlestick, it tells bullishness is ahead. Yes, I expect KLCI will continue going up for some more days.
Below: KLCI daily chart
Thus, the major correction I am expecting in Sept and October still not yet begin. It just made me think again a fact I mentioned before. It was about the buying and holding power that our KLSE main player has. EPF and PNB has both the holding power and buying power. There's no foreign fund with hot money getting out. How about EPF is not considering selling and decided to rejuvenate the market again after a couple of weeks break? If you consider that, maybe the main correction just couldn't happen yet, not this year. Maybe the correction (it still will come anyway) will come, say mid of next year? For now, unless, global market in a bearish mood for much longer than maybe only KLSE will follow. Let see what will happen to US market this month and October.
For Dow Jones Industrial Average, September is statistically known as the worst of the month of the year. There are jinx associated with September and October.
Since 1950 to 2006, the average for September is -1.0% a year and once as much as -11%.
September is the worst month, the closest is June with has the average of -0.1% a year.
If you curious about other months, here:
MONTH: JAN FEB MAC APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC
AVG. : 1.3 0.2 0.9 1.8 0.1 -0.1 1.1 -0.04 -1.0 0.6 1.7 1.8
I am not sure the statistic for KLSE but I guess it very close. Last year, KLSE fell 7.4% in September.
Market change's tentative date 15 Sept 09.
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EPF posts RM4.6bil investment income in the second quarter. Equities was the highest income contributor for the quarter, growing seven-fold to RM1.74 billion, against RM239.55 million earned in the previous quarter. By seeing the KLCI, you can guess, EPF will also made a lot in the third quarter. Here EPF posts RM4.8b Q2 investment income
Read opinions such as: “On this evidence, Malaysian investors, as a result of their holding power, have to a large extent smarted the market meltdown. This, in my opinion, is one of the most important factors supporting the market this year” at http://www.theedgemalaysia.com/will-the-ghosts-of-sept-oct-past-come-a-calling.html
Be aware of September and October jinx at http://www.nysun.coms/beware-september-october-jinx
FBM KLCI already rebounded from the support zone around 1,163 pt (7,571 pt for FBM100). I expect it will stay going up in an attempt to break the current resistance 1,196 pt zone (7,862 pt for FBM100). However, I think its attempt going to fail, thus the up trend would be very short-lived. That is the last call to clear any positions unless you willing to weather the storm coming. The failure to break 1,196 pt will create a micro double top and this will give another significant technical evidence that a major correction is in order. If somehow the index managed to break the resistance 1,196 pt convincingly, then forget what ever I said in this paragraph for a while. Anticipating a micro double-top is a bold prediction, which mean I can easily be proven wrong, say within days and 30 pt difference is no sweat for the index.
The longer term view is far more important, I am still expecting the whole up trend (end of October 2008 to current) will corrected back at least to 1,050 pt zone (6,800 pt for FBM100). It is a typical standard technical correction reading, any up tend will corrected to a certain extend. It is also in agreement with average market P/E ratio analysis : P/E need to go back to say 12 P/E in order to 'correct' itself.
That is what I mean by a major correction is coming. If the index back to 1,050 I think my positions going to be very severed. EPF and PNB should be able to pass through fine, especially with the better outlook next year. With limited capital I am not willing to holding on tight.
below: KLSE FBM KLCI daily chart:
below: KLSE FBM100 daily chart:
When Bursa announced it few months earlier, I thought there will also be tick sizes change for counters below RM1. So it is surprise for me, when there is no change at all.
I think counters below RM1 that is more in need of tick sizes changes.
For penny stocks (depend on the price) there can be 10% difference between the top buy quote and top sell quote. The gap (because of tick rules) in each quote price (also between bidding price) is so large that it doesn't cover the traders that want to buy or sell somewhere in between those gaps (say 3%). Less liquidity. Every buyer and seller need to wait the price move in at least 10% then only a price is done.
Let use M-TONE (among last week's top 40 high volume counter last week) as an example:
Buyer and seller quote is at 0.055 0.060
Next buyer and seller is at 0.050 0.065.
There's 9% difference between buyer and seller quotes. Also known as 'spread'.
There also 8% difference between next best seller bidding price.
Every buyer and seller need to wait the price move in at least 9% then only a transaction is done. This is not a problem for over RM1. For example, for RM5 share. Buyer and seller need only 0.02%.of price movement then a transaction is done.
For very actively trade penny stocks, for example M-Tone probably there will be no problem (when it is active at this period). In fact after you buy quote is done, you can immediately queuing for sell. Both can be at best quoted and you stand to gain 9% intra-day.
However, at other time and for other penny stocks, this is normally not the case. You can be queuing very long because you can only buy (or sell) at say 9% difference. So are other buyer and seller.
Because of less liquid, sometime only partially is done and the brokerage cost (in %) can be much higher than normal. Example: If only 1,000 unit of M-Tone at RM0.055 is done, your brokerage cost is at 72% (excluding stamp duty etc).
For other mid-range priced counters, I don't think they in need of these reduced tick sizes much. According to some opinion, reduced tick sizes will attract buying because of 'perceived low cost'. In practice, this will not effect much. Assuming I want to buy at best quote price, I will just queue at less no. of share if the tick is 2 cent and more units if it is 1 cent, since the my buying budget is the same. Especially when you are a fund manager with high buying budget, this not an issue at all, you just buy when you want to buy.
However, it's true that in term of 'liquidity', it is better. This apply a lot for very expensive counters.
Whatever, demand is always the king and overrules every tick sizes and everything I wrote above.
Tick sizes for KLSE (started 3rd July 2009) :
:
In previous blogpost on KLSE outlook, I said 1,157 pt is the resistance.
KLCI managed to break out from that resistance.
Yes, it is a breakout although not a convincing one.
Convincing or not, it's still a breakout and now the resistance became the support.
That new minor support level (1,157 pt) is an ideal level to be taken as the support level where any breach can be taken as an early bearish signal.
Now, index still on the way up, what is the target now? The next resistance? Or the next pivot or reversal point?
At this moment I don't have any realistic target zone, as a wave 5 in the making (I think so), anything can happen in a 'major' way. As the last bullish phase of Elliot wave cycle; it can reverse anytime for a major correction or it can move all the way up like there's no tomorrow (bullish extension waves also can developed). Either way, the 5-wave sequence (intermediate) minimum requirements has fulfilled. Any resistance/targets should be just soft targets. Also, I don't think the current narrow trend will keep trending flat or sideways manner for long.
Compared to wave 1 or 3, current wave (5) is the best time to wait and see (considering the risk and reward). If you must trade, short-term trading (say, 4 days market cycle) is better idea at this period rather than lingering longer.
Previous week, as predicted by most analysts, lower liners (we cannot say second liners anymore) will take the stage. The prophecy is fulfilled. It also fulfilled the characteristic of climatic wave 5.
Last week, lower liners took the stage. This week so far, they seem wavering. I think it is because the lack of retails participation. If they came, they came in half-hearted, I will say more like they were nibbling. I guess, our big local fund managers are the only market participants that really trade full hearted.
'Participants factor' actually is one of the reasons I said KLSE can move either direction in a major way. Lack of oversea funds, other local fund and retail participants made certain local big funds 'solely' lead the market now. If EPF still has the budget and decide want to come, she will come. And the index will continue going up. Lack of mixed participants is the characteristic that made me not so keen of KLSE now.
However, I have a bullish longer term view. My Elliot wave counting been revised to make all the sequence of intermediate waves (short-term), primary waves and cycle waves harmonizing.
Let just say, I think (crystal ball gazing) KLCI can go higher than 1,524 pt and breaking new record again and again next year. There is no change in intermediate waves counting though. The corrective a,b,c wave target is still around 1,000 pt . Too early to talk about that now, wave 5 haven't even ended yet. Need to wait for that first, should be 'sooner' by now. Patience. Like waiting for traffic-light to turn green, the longer you wait, the sooner it will happen.
KLCI daily chart: (click for full viewing)
KLSE Main and Second boards will be unified on 3rd August 2009 which will known as Main Market.
Mesdaq will be renamed as ACE Market.
The Main Market will be for established companies, and will have uniform listing requirements and comprehensive market-based regulation.
The ACE Market is designed to offer emerging companies early access to equity funding.ACE Market will become an alternative market open to companies of all sizes and from all economic sectors.
There will no longer be any requirement on minimum issued and paid-up capital.
Hey, we cannot say 'second-liners' anymore, it will be just 'lower-liners' (referring to low priced counters).
Changes in entry requirements after board unification:
Read some opinion on this: Starbiz
If you are using technical analysis methodology to analyze KLCI data you should be aware of this. Your KLCI data up to 3rd July 09 refer to a basket of 100 counters but on 6th July 09 and onward, KLCI data refer to a basket of 30 counters. That 70 counters difference, you can say the data you are analyzing are actually two different entities.
Technical analyst analyze participant's buying and selling activities. And previous KLCI data refer to participant's buying and selling activities of 100 counters but FBM KLCI data refer to participant's buying and selling activities of just 30 counters. It is difference.
Your long term support or resistance analysis could be skewed. Your long term trend channels could be skewed. Your Eliot wave counting could be skewed. Your likely pivot points could be skewed. Your cluster zone could be skewed. Your high probability reversal point could be skewed. Allow skew ness factor.
And another skew ness factor:
With FBM KLCI; component counters yesterday's close price calculated as today's opening price (for index calculation). It shouldn't be. Today's opening price should be determined by today's opening price NOT by yesterday's closing price. How can it be? This will skew your candlesticks readings. Anyway, I think it's quite minor and heard FTSE is looking into it (thanks to Maybank Investment Bank for the alert).
KLCI moves fast and stocks you are holding moves very, very slow, right?
KLCI moved a lot and stocks in your portfolio moved a bit, right?
Then you curse on the KLCI, right?
You are not alone.
I have been asking KLSE participants (investor, trader, punter, remiser, dealer, D.I.Y. analyst) on FBM KLCI compared to old KLCI for the last few weeks. They have a common opinion, "FBM KLCI moves fast" . Those I asked are not fund managers or those dealing with fund managers. They are retail participants and most remisers also deal with retail participants. So, it is not really a surprise that they are not really fond of the new KLCI. Not that they love old KLCI in the first place but they just prefer the good old KLCI.
Why KLCI is important to us? Why not we simply go for other indexes such as FBM100 or FBMEmas?
Checking the index is like checking your portfolios status. Ask your fellow traders, watch the news, read the newspaper, you can easily get the what is the index of the day. When we are informed at lunch time or by evening TV news that the index gained, we can reasonably expect our stocks position also gained (at least a bit). We like to have index that 'reflects' our stocks positions even though we are not holding any index-linked counters. Not just day to day monitoring, unit trust investors also monitor the stock market time to time. It is a casual way of monitoring the stock market.
In short, KLCI is our instrument to 'feel' the pulse of the stock market.
Now, your 'feel' could be (already) skewed.
Five counters have about 55% weightage of KLCI. Half KLCI gain/loss is because of those 5 counters. True, those five counters could cancel each other on gain/loss but very likely they move in-synced together and so far they seem very good in team working. So, remember when you seeing KLCI, you are seeing those power 5 counters: Commerce, Public Bank, Sime, Maybank and Tenaga.
Datuk Yusli conveniently said, "FBM KLCI meant for oversea fund manager". That is, KLCI is NOT meant for us, the retail participants. Yes, nobody forced us to take KLCI as instrument to 'feel' the market. But after all these years, just like smoking, it is a hard habit to break.
Furthermore we still been shoved everyday with FBM KLCI in the local TV news, in newspaper, in market analysis. You just can't escape KLCI. Just like on the Independence Day, you can't escape the parade. People, TV and newspaper still talking the overall KLSE in term of KLCI performances. What they don't realized when they talking KLCI, they are about referring to those five counters' performance. Everybody in mass-media addicted to KLCI.
We also hate it when KLCI moved 120 pt last week, on the news they said "See, foreign investor have confidence in our economy." Or 'That was a good super bullish week for KLSE". And your portfolio hardly moved. Half of KLSE performance actually the net performance of those 5 counters.
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How about the fact that half of the index only show net performance of FINANCIAL and PLANTATION sectors. If you go for construction or property sector's counters, they can way be skewed from KLCI. What does exactly FTSE standard say about SECTOR representation?
If there are 5 weightage-powered counters, shouldn't each counter selected at least representing different sectors? Then we have 5 sector represented. They reflect overall market better than just two sectors. BTW, if you asking for CONSTRUCTION sector to be presented in those power 5, you are asking too much because there is NOT even one single construction counter in KLCI's 30 components stocks, leave alone in the top 5 or 10 weightage counters. Building materials, construction, hotels, insurance, property, timber and technology are NOT represented AT ALL in KLCI.
BURSA already addressed this issue. According to Datuk Yusli, KLCI changed from an economic barometer that must have all the key sectors represented to a market barometer that measures performance based on the market capitalization of the stocks. This is a hard fact we should know because so long stock market generally accepted as one of economic indicator (to a certain extend it is very true). Stock market in many ways are actually try to anticipate the economic's future, maybe 3 to 6 months or 1 year down the road. With FBM KLCI, the value of it as economic indicator will diminished.
We need to listen to Datuk Yusli, "FBM KLCI meant for oversea fund managers". And we are not oversea fund manager. Need to get familiar with other FBM Indexes.
This is the first part of a series of blogpost on 'reaction' to FBM KLCI
FBM KLCI weightage and float at KLCI component
Here the list of 30 stocks that has made it as components stocks in FBM30.
(maybe you are not trading these counters but in a collective way, they will greatly influence your share trading decisions for many years to come)
(updated with more data July 31, 2009)
FBM (FTSE BURSA MALAYSIA) KLCI 30 COMPONENTS STOCKS / COUNTERS
| KLCI | Free Float | Stock | Stock | |
| Weight (%) | Factor (%) | Short Name | Code | |
| FINANCIAL | ||||
| AMMB | 2.20 | 75 | AMMB | 1015 |
| BCHB | 10.10 | 100 | COMMERZ | 1023 |
| Hong Leong | 1.10 | 40 | HLBANK | 5819 |
| Maybank | 9.40 | 75 | MAYBANK | 1155 |
| Public Bank | 9.80 | 100 | PBBANK | 1295 |
| RHB Capital | 0.60 | 20 | RHBCAP | 1066 |
| 33.20 | ||||
| PLANTATION | ||||
| IOI Corp | 6.80 | 74 | IOICORP | 1961 |
| KLK | 2.00 | 50 | KLK | 2445 |
| PPB Group | 2.10 | 50 | PPB | 4065 |
| Sime Darby | 9.90 | 75 | SIME | 4197 |
| 20.90 | ||||
| TELCOS | ||||
| Axiata | 4.80 | 75 | AXIATA | 6888 |
| Digi.com | 2.10 | 40 | DIGI | 6947 |
| Telekom | 2.30 | 75 | TM | 4863 |
| 9.20 | ||||
| GAMING | ||||
| Genting | 5.30 | 75 | GENTING | 3182 |
| Resort World | 2.70 | 50 | GENM | 4715 |
| Berjaya Sports Toto | 1.60 | 75 | BJTOTO | 1562 |
| 9.60 | ||||
| UTILITIES | ||||
| Petronas Dagangan | 0.80 | 30 | PETDAG | 5681 |
| Petronas Gas | 1.80 | 30 | PETGAS | 6033 |
| MMC Corp | 0.80 | 40 | MMCCORP | 2194 |
| Tenaga Nasional | 8.00 | 75 | TENAGA | 5347 |
| YTL Power | 1.60 | 40 | YTLPOWR | 6742 |
| Tanjong | 0.80 | 50 | TANJONG | 2267 |
| YTL Corp | 1.90 | 50 | YTL | 4677 |
| 15.70 | ||||
| CONSUMER | ||||
| Astro All Asia Network | 0.80 | 40 | ASTRO | 5076 |
| BAT | 2.00 | 50 | BAT | 4162 |
| Parkson | 0.80 | 50 | PARKSON | 5657 |
| UMW | 1.40 | 75 | UMW | 4588 |
| 5.00 | ||||
| TRANSPORT | ||||
| MAS | 0.50 | 30 | MAS | 3786 |
| MISC | 4.00 | 40 | MISC | 3816 |
| PLUS Expressway | 2.10 | 40 | PLUS | 5052 |
More at FBM KLCI Component Stocks
Here is my KLSE outlook based on FBM100 index. (Need to get familiar with FBM100 index now)
My outlook is very similar to KLCI. It is bearish both short-term and longer term. Likely we still in wave 5 (last bullish wave of Elliot 5-wave sequence) and it is looking for the end. The likely level is the resistance at 7,645 pt. I don't have the volume data to assess the strength of last week up-trend. For now, let just assume the volume trend is similar to FBM KLCI. Since the last close FBM100 index is 7,576.71 pt, it almost near the resistance 7645.6 pt level, I find next week is a crucial week. It is only 68.89 pt. We are talking FBM100 here, not FBM30 KLCI. 68.89 pt is only about 0.91% difference to last close.* That resistance level is significant for both short-term and longer term outlook. See KLSE FBM100 daily chart at the bottom.
It need new money poured in to the market in order to break resistance. I don't know about fund availability of our institutional funds but I think next week is the decisive week for them. And they are the market leaders. It is decisive week for us too. I see the only bullish factor is the improved financial earning release in US. For now, I am in bearish mode. If FBM100 index decided not to breakaway but downward, be prepared for a correction to least a 6,670 pt level.
Not much to say on that, just wait and see next week.
Here are opinions from a dealer and a market analyst on the current KLSE as appeared in TheStar Saturday 25 July 2009:
A 10 years trading dealer said "yes, you see 1 billions volumes being transacted in the last two weeks, but there's no real liquidity in the market. Retailers are definitely not in. There are actually very few participants in the market. It is just the institutions that are supporting the market".
A technical analyst from ECM said, "The bulls might take out the key 1,165 the key resistance level. As the run up in the past 10 days have been hogged by the blue chips, he feels that lower liners will begin playing a central role in the coming weeks. He also said, "There are many people still sitting on the sidelines. This is a good news, a it shows many are still non-believers, hence the market has the room again to go."
I can't disagree with both. Both talking about the lack of market participation. The technical analyst went on further, "lower liners will begin playing a central role in the coming weeks." Another way to put it what he is was saying "the retails participants will be lured by the KLCI up trend and start buying lower liners". Those sidelined retailers (that might include you and me) will be lured and come in coming weeks. Are you?
What you shouldn't forget is lower liners typically is the last batch to run before the market up trend ended. This is where unsuspecting retail traders get 'caught'. If you must trade, it should be for a very short (few days) holding. Yes, it is 'hit n run' trading. It is 'touch n go' trading. Cut loss if you must. Holding longer could make you 'caught n stuck' in uncompromising positions.
* The feel of FBM100 point changes is the main 'feel' we need to develop if we want to use FBM100 as our day to day market indicator. It a bit harder because we have been (and still) shoved with KLCI for so long. There is a little poll on the right side column of this blog if you haven't notice. I was thinking of using FBM500 actually but let just start with FBM100.
Probably you have read my previous KLSE outlook blogpost, which call for bullish. I don't give any technical outlook after that because I was just waiting for it to develop. And now the bullishness is about to end. The bear is peeking through the window.
This blogpost is a call for the opposite.
Now it is a matter of time for the correction. Whole impulse (5 wave) has fulfilled, its just not (almost) ended yet. And a big bearish warning is coming after wave 5 ended.
The breaking of previous high (peak of wave 3) by the current up trend (Wave 5) making the whole (1,2,3,4,5) impulse wave almost completed, we need to prepare for corrective trend (a,b,c)
In other time, wave 5 can go further up ahead beyond wave 3 peak. Many potential targets can be accessed, it can even has an extension. However, I don't think this time.
Looking at bigger picture (bigger wave sequences or medium-term waves), I don't think current wave (5) will go far. I will say, KLCI will find it hard to go beyond 1,150 pt level. I will not wait for CI to close to that. If you been noticing this new power-5 FBM KLCI moved fast, at first I thought I can linger on holding position while riding wave 5 longer. Now, I need to watch my stocks position very closely. Technical indicators also showing divergence with the index now. See the KLCI daily chart below: (click the photo for larger view) 
Looking at the bigger wave sequences (Elliot wave's sequence within sequence); the whole of wave 1 up to current wave 5 are actually corrective wave 4 of a bigger larger wave. This bigger wave sequence in bearish 5 wave sequence. See KLCI weekly chart below: (click the photo for larger view) 
As soon as wave 5 ended, there shall be corrective a,b,c sequence. And that is the main basis for my bearish outlook; this corrective wave 'should' go below 800 pt in order to fulfill the bigger wave sequence. Probably too early of this warning. Okay, never mind about 800 pt, let just take 1,000 pt as the downward target for now.
The only comforting thing, if this expected corrective wave start forming is that, there will be bullish sub-wave within. This corrective also can be in a,b,c,d,e sub-wave instead of a,b.c
After wave 5 ended, we only can ride wave b and d. Other waves are bearish. Note that this whole a,b,c,d,e corrective wave can take a long time to be completed. I only can say may it take few months to a year to completed. Say, maybe until second quarter next year to be completed.
BTW, my waves counting can soon easily be proved inaccurate ; if current wave 5 go way beyond 1,150 pt . If that happen, my longer term bearish outlook is wrong and we can rejoice.
This is one of those time I hope my market wave reading is wrong because having 800 pt (as the longer term downward target) is not really a comfortable thought. Especially we cannot go short for KLSE stocks. Elliot waves reading can have many probable scenarios. If you have contra technical outlook, your comments are most welcomed.
If my bearish outlook is AH1N1, I think WHO will give it level 5 (or even 6) alert warning.
Do you know what they mean by saying, "Oh, the market is going to do magic after this."
They are jokingly referring to the event when the CI was down, say between -8 to -12 point for the whole day, but when it come to close time, it is on positive side, say +2 pt.
How to do the same magic? You already know how the tricks is done, anyway here is the refreshment tutorial:
First we need to select certain specific stocks . Be aware that how impressive the magic effect will be, depends on how much of your fund you willing to allocate.
Now, with smaller no. of component counters in FBM KLCI we can do the magic slightly easier than last time. It used to be 100 now its only 30 to choose from.
Out of those 30 counters, we can narrow down to just 10 counters which give a total 71% index controlling power. Those 10 counters are: Commerce, Maybank, Public Bank, Sime, IOI, Genting, Resorts, Axiata, Tenaga and MISC.
With limited fund, it still out of reach for us. In that case, we can narrow down to only 5 counters which give us 55% index controlling power. Those 5 giants are: Commerce, Public Bank, Sime, Maybank and Tenaga. Those 5 are the 'sweet spot' to optimize our fund budget.
Now, buy and queue as many lot of those counters at much higher price after 4.39 pm. Make sure many lot of trade done at price higher than the whole day price. We can stop doing that at 4.50 pm, the theoretical closing price already decided after 4.50 pm.
That's how you do magic with FBM KLCI. Smooth and easy.
If you still don't have enough fund, you can try with one counter only. Commerce gives you 10.2% index controlling power. Less index controlling power means the magic effect will not that impressive but still you can try. If 29 other component counter stay at yesterday close price or they canceling each other gain/loss, a 10 cent gain in Commerce will roughly add 6.5 pt to KLCI .
What? Your fund still not enough even for one counter?
Too bad, you are not EPF.
BTW, congratulate yourself for trying to be some smart money. Just like they say, "Dumb money (less informed investor) decides on opening, smart money (well informed investor) decides on closing."
Start 6th July 2009, FBM30 will be adapted as FBM KLCI replacing previous KLCI as the market benchmark.
FTSE Bursa Malaysia KLCI is made up of the 30 largest listed companies by market value, with at least a 15% free float and minimum 10% annual turnover of free-float shares.
Previous KLCI has 100 component stock while the new FBM KLCI only 30.
The components will be revised twice a year, June and December.*
Final list of 30 component stocks is at FTSE Bursa Malaysia KLCI
SECTORS
Top 5 sectors
KLCI FBM KLCI
sector weightage (%) sector weightage (%)
Banking 25.2 Banking 33.7
Plantation 14.8 Plantation 18.7
Transport 11.1 Utilities 11.2
Utilities 9.5 Gaming 9.9
Telco 8.1 Telco 9.3
5 sector which have a total over 82% of KLCI weightage: finance, plantations, power, telco and gaming
2 sector which have a total over 52% of KLCI weightage: bank & plantation
7 sectors NOT in FBM KLCI – building materials, construction, hotels, insurance, property, timber and technology. In another way to put it, these 7 sector has a total of 0% of KLCI weightage.
STOCKS
Top 5 stocks
KLCI FBM KLCI
stock weightage (%) stock weightage (%)
Sime 7.2 Commerce 10.2
Maybank 7.0 Public Bank 10.0
Tenaga 5.6 Sime 9.8
Commerce 5.5 Mayban 9.7
IOI Corp 4.9 Tenaga 7 .8
10 counters which have a total over 71% KLCI weightage: Commerce, Maybank, Public Bank, Sime, IOI, Genting, Resorts, Axiata,Tenaga and MISC.
Power 5 counters which have a total over 50% KLCI weightage: Commerce, Public Bank, Sime, Maybank and Tenaga.
Highest free float factor : Commerce (100%) and Public Bank (100%)
Lowest free float factor : RHB (25%)
Highest weightage: Commerce (10.1%)
Lowest weightage: MAS (0.5%)
Highest share price: BAT (RM44.50) close price on 3rd July 09
Lower share price: MMC (RM2.09) close price on 3rd July 09
BTW, Bursa Bhd which initiated the FTSE standard itself is NOT in the FBM KLCI list.
I think this post will need updates and I will if necessary.
* Start speculating prior to June and December which new counters will enter the list and which counters will be kicked-out. Buy those speculated new entry and hope index fund manager adjust their portfolio accordingly. We can make it a semi-annual betting event, more fun than betting which candidate going to win the next pilihanraya kecil.
Below is I believe the last statement or info by Bursa itself before FTSE Bursa Malaysia officially launched:
Friday July 3, 2009
New method to keep up with global standards
FTSE Bursa Malaysia KLCI, based on a new methodology for the country’s benchmark index, will address the issues of tradability, investability and transparency once it is launched on July 6. This is the last of a two-part article by Bursa Malaysia onWHILE traditional market capitalisation-weighted index methodology used by the KL Composite Index (KLCI) is widely accepted and understood by investors, areas for improvement were also considered.
Among the most frequently cited requirement from investors is the need to identify tradability and investability of constituents. Investors did not have on hand the information if the shares held by the country’s benchmark index big-cap constituents could be bought or sold at any time. This concern takes precedence among global investors when volatility becomes a common characteristic of the market.
To address this concern, the country’s benchmark index will adopt a global index calculation methodology provided by leading index provider, FTSE Group.
Starting July 6, 2009, the enhanced benchmark index for the local equity market, the FTSE Bursa Malaysia KLCI, will be based on free-float market capitalisation methodology and its constituents will be liquidity-screened.
Instead of tracking 100 stocks as held in its predecessor, the FTSE Bursa Malaysia KLCI is made up of the 30 largest listed companies by market value, with at least a 15% free float.
A free-float based index is regarded as a better benchmark than a traditional market capitalisation-weighted index as the former only considers the number of shares in each company that is publicly available for trading.
Constituents of the FTSE Bursa Malaysia KLCI have to also pass a liquidity screen whereby selected companies must have a minimum 10% annual turnover of free-float shares. This liquidity screening is essential for investors to trade in and out of stocks at will.
These familiar and accepted index calculation methodologies are in fact applied across many markets and asset classes.
The FTSE Bursa Malaysia KLCI is calculated and managed in accordance to publicly-available ground rules and based on specific ratios – size, free float and liquidity. This allows companies that are currently excluded to work towards being included in the benchmark index in the future.
To ensure continued transparency and adherence to the ground rules of its methodology, an independent committee of market practitioners will review the calculation and management of the FTSE Bursa Malaysia KLCI every June and December.
Besides investability and tradability, two other issues that must also be addressed by an index in order to be considered useful and relevant are representation and replication.
The tightly designed FBM KLCI holds a much smaller number of companies compared with the KLCI but its constituents are prime market movers and represents about 60% to 70% of the main board’s market capitalisation.
This ensures the FTSE Bursa Malaysia KLCI‘s suitability as a barometer for Malaysia’s equity market while being a perfectly replicable portfolio of stocks.
Retail investors that pick stocks can use the FTSE Bursa Malaysia KLCI as the initial filter to identify the country’s biggest-capitalised stocks that have passed the free float and liquidity screen.
Meanwhile, product issuers would find 30 constituents easier as a base rather than 100. This facilitates development of more index-linked products such as exchange traded funds, options, warrants and index-tracking unit trust which is beneficial to the investing community as investors can easily create and maintain a low-cost, diversified and liquid equity portfolio.
Existing financial products based on FTSE Bursa Malaysia Large 30 Index or the KLCI, such as the FBM30etf, KLCI Futures and the KLCI Options will adopt the FTSE Bursa Malaysia KLCI as its underlying index from July 6, 2009.
The actual transition of the KLCI to the FTSE Bursa Malaysia KLCI would be seamless as the opening value for the FTSE Bursa Malaysia KLCI is based on the KLCI closing value today.
However, investors who rely on momentum and market “pulse” would notice an increased speed in the calculation of the FTSE Bursa Malaysia KLCI’s index values as it is on a 15-second basis as opposed to the KLCI’s 60-second basis.
The advantages and features of the FTSE Bursa Malaysia KLCI put the local benchmark index on par with its global peers.
While meeting the needs of foreign investors, the FTSE Bursa Malaysia KLCI along with other indices in the FTSE Bursa Malaysia series would benefit local investors by providing a platform for robust investments products and more importantly, a varied selection of investment options covering different asset classes and themes.
This article is contributed by Bursa Malaysia and FTSE Group
Original articles link:: Bursa Malaysia announcement: the star 3rd July 09
Also Bursa Malaysia's earlier statement: the star 18th April 09 and 22nd Jan 09 (outdated but you can go there if you are longing to see photo of Datuk Yusli Mohamed Yusoff talking with and FTSE Group Asia Pacific MD Paul Hoff)
How was KLSE's reaction to PM Najib's announcement on 30th June 2009?
Not good, KLCI is telling you. (Don't care what the media or the alternatives been telling.)
Or something else is brewing.
Next time, why not just let Rosmah made the announcement. ;-)
Link : when Kuan Yew meet Rosmah
