Week In Review, Nothing New

For this week, there is nothing new about Malaysia’s FBMKLCI index. Still consolidating, support  isstill holding up at around 1,752.

KLCI

What is more puzzling is that FBMKLCI has lagged behind our regional neighbours in terms of YTD performance:

KLCI_2.jpeg

One may wonder what may have caused the relative divergence in performance.

The recent drop in the Malaysian stock market may be attributable to recent sell-out by foreign investors (see: https://asia.nikkei.com/Markets/Nikkei-Markets/ASIA-MARKETS-Singapore-Stocks-Rise-To-Highest-In-2-Months-Malaysian-Equities-Fall).

Foreigners.png

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Support Is Still Holding Up?

For week ending 8 October 2017, it appears that FBMKLCI manages to hold up at its support level of 1,752 and more importantly, it is still above its 200D MA.

A streak of losses in preceding week / earlier part of the week has resulted in bargain hunting in later part of this week. This had contributed towards positive rebound, as FBMKLCI closed higher than its 8D EMA with a relatively higher trading volume. Stochastic clearly shows an oversold position.

KLCI 07102017

What could possibly happen next?

Scenario 1: Uptrend

Ideally, the following has to happen:

  • The index trades above the other MAs and EMAs;
  • The index is able to break resistance point at 1,793; and
  • All MAs and EMAs are sloping upward

Scenario 2: Downtrend

  • The index trades below support level of 1,752;
  • 50D MA breaks below 200D MA; and
  • All MAs and EMAs are sloping downward.

Scenario 3: Range Bound

  • The index continues to trade in range of between 1,752 and 1,793;
  • All MAs and EMAs will flatten; and
  • Trading volume will be low.

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

The American Effect

…Yale’s Robert Shiller (founder of the Case-Shiller Index on U.S. housing prices), who said yesterday that “the U.S. stock market looks a lot like at did at the peak before all 13 previous price collapses,” investors may look at this as another brick in a new wall of worry. (Shiller defines a bear market as a 20% drop in prices, but does not issue a firm timeline for this drop.) ...” read more

How would a bear market in the US affect the FBMKLCI?

Since 2010 (post-GFC), Malaysia’s FBMKLCI has trended in tandem with the positive movements in the SP500 index. Nevertheless, the SP500 index has outpaced the FBMKLCI since 2015, as shown in the comparison charts of 60-day moving median of FBMKLCI and SP500:

KLCI vs SP (median).png

A simple regression analysis is computed between the moving medians of FBMKLCI and SP500, of which an r-squared of 0.54 has been derived:

Regression Results.png

Based on the statistical relationship against the SP500, the FBMKLCI is currently at level below that of the forecast value (based on median) of 1,851 but it is within the 95% upper & lower confidence bands (since Apr 2010 till date):

Forecast Median KLCI_Sep 17.png

The following simple high-level analysis shows the potential & possible impact on FBMKLCI if there is a 5% – 30% drop in the SP500. In this case, the lower band may be potential support zones (assuming the regression relationship holds).

Scenario.png

 

On why I use moving medians for the analysis, it is just one of the possible avenues to part filter the market noises.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

It Is All About The Edge

Little Rocketman has certainly created much anxiety in the financial markets. Further, the planned reversal of QE is envisaged to have greater impacts on emerging markets. Foreign funds have continued (?) to sell their positions on the Malaysia’s stock exchange. The FBMKLCI has suffered a 6-day consecutive decline. Are we in an oversold position?

IntroKLCI.png

If Rocketman decides to launch a missile, there could be more downside risks. Assuming that I would like to take a punt by taking a long position (i.e the KLCI is currently oversold), I may want to consider the following structured warrant:

Warrant Terms.png

Finding My Edge For A Long Position

To re-iterate again and again, I do not have the crystal ball to foresee what is going to happen in the next few days. More importantly, one should understand the trading edge before executing a position. So, what is the edge for this bet?

1.  Support, Support, Support

If you see the following hourly chart, there could be some possible zonal support around 1,761 ( a clear rebound). The next point of defense will be at 1,756.

FBMKLCI.png

2.  Implied Volatility < Actual Volatility

At current warrant price of RM0.05, the implied volatility of the underlying could be in the low range of 3% – 4%. Relatively lower than the actual volatility.

Implied Vol.png

Actual volatility has spiked up to 9.40% , as of today:

KLCI_VOLS.png

3. Seasonality may matter

With FBMKLCI-C3F, I have more than 180 days prior to the expiry of the warrant in March 2018. Based on the following seasonality table:

  • Possible profit taking opportunity in the months of October, December and March which appear to be historically positive (m-o-m basis)
  • Be cautious (with a possibility of taking stop-loss) in historically weak months of November and January

October Seasonality.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Random Blathers (11 Sep 2017)

Latitud Tree Holdings: Possible failure test. Opportunity for swing trading.

Latitud_RB_11092017.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

A Very Long Rectangle

The rectangle chart pattern goes by many names. A rectangle pattern is simply a trendless price channel created when price action reaches two identical, or nearly identical, highs and lows. This is also called a congestion zone, consolidation area or trading range. Ideally, the highs and lows alternate, though this is not necessary. The matching highs form a resistance level and the lows a support level. Price action oscillates between these limits until it finally breaks out either high or low.

Read more: How are rectangle patterns interpreted by analysts and traders?

rectangle1.gif

Duration: Rectangles can extend for a few weeks or many months. If the pattern is less than 3 weeks, it is usually considered a flag, also a continuation pattern. Ideally, rectangles will develop over a 3-month period. Generally, the longer the pattern, the more significant the breakout. A 3-month pattern might be expected to fulfill its breakout projection. However, a 6-month pattern might be expected to exceed its breakout target. Reference

In a nutshell, it is rather unusual for a rectangle pattern to last more than six (6) months. This happens to be the case for Kian Joo Can Factory Bhd, whereby its rectangle pattern has lasted since mid 2013 till present. One should wonder what is going on with this company?

KJCB_Sep 17.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Is KLCI Running Ahead Of The Ringgit?

One possible global macro tenet that relates to currency, equity and capital flows is that when the performance of equity markets continue to rise, it will attract foreign money flow and capital flows in turn strengthen the currency. Another possible permutation is that future expectation of a depreciating currency will contribute to capital outflow from the capital markets, which in turn will lead to an overall decline in the equity market.

The following graph shows the positive relationship between USDMYR and KLCI from 1 Jan 2015 till present:

KLCI vs USD.png

As shown above, when Ringgit depreciates, the KLCI will fall and vice versa. The following graph depicts a clearer positive relationship between KLCI and Ringgit from a return perspective (since 1 Jan 2015). Nevertheless, are we seeing a possible divergence in the relationship between KLCI and Ringgit, whereby the KLCI has risen way ahead of the movement in Ringgit?

Return Comparison_Updated.png

Given the recent low level volatility in the Ringgit, the KLCI appears to have run ahead of the Ringgit. As per the regression analysis, the actual index value of KLCI of 1,772 is relatively higher than the predicted value of 1,692 (as per regression analysis). It is imperative to highlight that the relationship between KLCI and Ringgit is relatively low at R-squared of ~0.24 (which may be attributable to the divergence).

Regression &amp; Forecast

KLCI forecast

 

Forex News: KUALA LUMPUR (Jan 17): Bank Negara Malaysia’s (BNM) measures taken are bearing fruit in terms of stabilising the foreign exchange market so far. The exchange rate volatility has declined with average ringgit intraday movement narrowing to around 61 points from an average of 82 points in December last year, according to the central  bank.

MYR_VOL.png

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.