Bracing For August

Today is the last weekend before the start of August, a month that is traditionally known as the most treacherous month for the Malaysian stock market. In my monthly-updated Market Pulse column (see link), it is observed that the month of August has seen some of the greater monthly declines historically.

KLCI – what is next?

As mentioned in earlier posting, if it ever breaches the support zone of around 1,728, I personally feel that we may potentially see further downside bias. If it ever breaks the 1,800 resistance point, the index may be on an upside trajectory.

FBMKLCI.png

How should one deal with August?

There are numerous options that may be considered…

  • Focus on swing trading strategies with appropriate reward-to-risk ratio / risk management strategies
  • Bargain hunting for beaten-down value stocks / mid-large cap stocks (for purpose of long term investing)
  • Increase cash position (in money market funds)
  • Maintain status quo

Tracking Volatility

Short term volatility is greatest at turning points and diminishes as a trend becomes established.

George Soros

 

As shown below, the current volatility of FBMKLCI continues to remain low. If the volatility increases, this may indicate that a potential trend reversal is imminent.

hv.jpeg

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.

What should we expect in August?

As per my first post on this site (https://kenutau.wordpress.com/2016/02/06/august-negative-month-for-fbmklci/) , on a balance of probability, we should anticipate the general indices to record a negative month-to-month return for the month of August.

Key dates to watch out in the month of August for Malaysia:

5 Aug 2016 Release of BNM Statement of Accounts as at 29 Jul 2016
12 Aug 2016 Release of 2nd Quarter 2016 GDP
22 Aug 2016 Release of BNM Statement of Accounts as at 15 Aug 2016
30 Aug 2016 Release of Monthly Statistical Bulletin July 2016
30 Aug 2016 Release of Detailed Disclosure of International Reserves as at end July 2016
Source http://www.bnm.gov.my/index.php?ch=en_event

What We Can Learn From Past Historical Trading Patterns of FBMKLCI (Jul-Aug)

2015: Decline in FBMKLCI commenced on 6 August 2015, with the index having traded below its 20D-MA and 50D-MA. There was a subsequent upward reversal on 25 August 2015. Prior to the decline on 6 Aug 2015, the FBMKLCI has been trending range bound in the month of July, with volume that was relatively lower if compared to the August trading month. Another key observation is that prior to the drop in August, the FBMKLCI was trading below that of its 50D-MA and 200D-MA. The 3 MAs lines were pointing downward for month July prior to the decline in August.

Aug_2015.jpeg

2014: Similar to 2015, the month-to-month decline in FBMKLCI commenced on 6 August 2014.  However, it has a relatively shorter time frame of decline prior to a upward reversal since there was a major decline on 8 August 2014. Prior to the decline, the FBMKLCI has been trending around 20D-MA and 50D-MA, but above its 200D-MA. There is no material difference in terms of volume for both July and August. The 20D and 50D MAs were pointing downward prior to the decline, whilst 200D MA was maintaining an upward trend.

Aug_2014

2013: Similar to 2014, prior to the decline, the FBMKLCI has been trending around its 20D-MA and 50D-MA, but above its 200D-MA. It has two major significant declines, with the first decline commencing end July and another major decline was recorded on 20 August 2013. Rebound or upward reversal happened at a later stage in early September. Volume was significant in 3rd week of August onwards. The 20D and 50D MAs were pointing downward prior to the decline, whilst 200D MA was maintaining an upward trend. 20D MA actually crossed below the 50D MA in July.

Aug_2013.jpeg

2012: Unlike 2015,2014 and 2013, 2012 recorded a positive trend for the month of August. The subsequent decline happened in the month of September. The FBMKLCI has been trending above 20D, 50D and 200D MAs. Three MAs were all pointing upward, with significant support in between the lines.

Aug_2012.jpeg

What about August 2016?

Aug_2016.jpeg

  • It will depend on whether the FBMKLCI is able to continue trading above its 200D MA resistance line. If yes, we may potentially see a continuing upward trend for FBMKLCI with 3 MAs potentially pointing upward (contrast: 2015 / 2014 / 2013).
  • We saw some positive upward movement in FBMKLCI when the 20D MA crosses above 50D MA lately.
  • Potential support line at 1,612
  • Volume has been ‘quiet’ for month of July

 

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE 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. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.