(Chart 1) KLCI chart from 28/7/2009 to 25/11/2009
Last week, we mentioned that the KLCI was supported by the L1 uptrend line which started from August this year, and as a result, the L1 uptrend line has become a general guide line for most investors.
(Chart 2) KLCI chart from 10/8/2009 to 03/12/2009
However, as the KLCI tests the L1 support line, it is a crucial moment, for if the KLCI should break below the L1 line, it suggests that the L1 uptrend is no longer valid and a reversal of trend might form. As indicated by A, the KLCI was shaken by the negative news about Dubai, while markets across the globe was also affected, as a result, the KLCI fell below the L1 uptrend line.
Actually, before the KLCI breaks the L1 uptrend line, it has stayed below the Bollinger Middle Band, but since the Bollinger Bands was contracting, it has not shown a downtrend formation yet. With the incident from Dubai, the Bollinger Bands expanded and the KLCI ended lower.
Generally, sudden news happen regularly, and during the contraction of the Bollinger Bands, it implies that the KLCI could move either way, and the negative news did actually shorten the consolidation of the KLCI. As shown by A, the KLCI tested the L1 line before it breaks below it. Technically, a downside break down of the L1 suggests and end of the uptrend, and there is a risk of a downtrend formation.
Let us now take a look at what are the possibilities for the KLCI, so that investors can be prepared for the outcome.
Possible 1:
(Chart 3) KLCI chart from 14/1/2009 to 29/09/2009
As indicated by A, the KLCI fell below the L1 few month ago, ended roughly 6% lower and formed a Symmetrical Triangle consolidation pattern. However, the KLCI managed to resume its upward momentum, breaking above its resistance and resume its uptrend movement, gaining another 20% or so. This is a kind of typical example of the KLCI resuming an uptrend after breaking below a previous one.
Possible 2:
(Chart 4) KLCI chart from 11/6/1996 to 12/1/1998
As indicated by A on chart 4, the KLCI broke below the uptrend line, and formed Lower-highs, thus forming a downtrend. All during this downtrend, the KLCI has failed to break above the downtrend line, and the downtrend continued for 18 months, losing about 80%. Therefore, it is important to know that all bear trends begin with a break down of a previous uptrend. Investors could do nothing but to cut-loss.
Examples of Resuming an uptrend:
(Chart 5) AMMB 1015, chart from 23/8/2006 to 31/7/2007
As shown on chart 5, price of AMMB formed an uptrend in August of 2006, with the T1 line being the uptrend line. As indicated by A, price of AMMB broke below the uptrend line during a technical correction, and it successfully returned to above the T1 uptrend after a couple of attempts, and not only that, price of AMMB also broke above the RM 3.80 resistance, with a new high, as indicated by B, and therefore, it resumed its uptrend, and continued the T1 uptrend.
Example of Ending an Uptrend:
(Chart 6) AMMB – 1015, chart from 22/8/2006 to 18/4/2008
As shown on chart 6, price of AMMB broke below the T1 uptrend in August, 2007. Although it attempted to test the T1 uptrend line, it failed to break above, and in fact, it formed a Lower-High as indicated by B, after two months of breaking below the T1 uptrend line. The lower-high was actually a hint that a downtrend might be forming. Nonetheless, price of AMMB later formed a T2 downtrend line, and despite many rebound, price remained resisted by the T2 downtrend line, a bear trend was formed.
Current Case Study for AMMB:
(Chart 7) AMMB 1015, chart from 19/1/2009 to 3/12/2009
As shown on chart 7, there were many corrections in the uptrend of AMMB, (A – July,2009, B – September, 2009, and C-November, 2009), but despite many corrections, price of AMMB remained supported by the T1 uptrend line, and therefore, the uptrend remains intact. If price should remains supported by the T1 uptrend line, there is a chance for AMMB to retest its resistance of RM 5.17 ~ RM 5.30 level. If price should break above the resistance, the uptrend is expected to carry on.
Other than the T1 uptrend line, support for AMMB also found at RM 4.6 ~ RM 4.70 level. If price should break below the T1 uptrend line, it means that the T1 uptrend is no longer valid, and price will consolidate. If price should also break below the RM 4.60 ~ RM 4.70 support, it would be a signal suggesting more downside risk, thus a signal to cut-loss.
| 44 Q Rolling PER | 14.04 times | Dividend Yield | 1.60% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/3/2009 | 8 sen | 2.55% | 14.69% |
| 31/3/2008 | 6 sen | 1.56% | 11.13% |
| 31/3/2007 | 5 sen | 1.33% | -3.38% |
| 31/3/2006 | 5 sen | 1.77% | 7.34% |
| 31/3/2005 | 4 sen | 1.42% | 4.35% |
Table 1: AMMB Yearly dividend, dividend yield, and net profit ratio.
Conclusion:
Last week, we mentioned that the KLCI was preparing for a new movement and stated two possibilities outcomes for the KLCI. The KLCI ended below the L1 uptrend as sparked by the negative news of Dubai. Basically, regardless of the reasons behind, technical analysis signal remains valid. For this week, let us take a look at another two possible outcome for the KLCI, so that investors are well-prepared.
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