Profitability of Technical Analysis in the Malaysian Stock Market

By Fred Tam

KUALA LUMPUR STOCK MARKET OUTLOOK: Forecast for Wednesday, June 13, 2007: Market consolidating as it awaits fresh leads. Hold.

Technically speaking:

1. As at Tuesday’s close at 1360.58 the KLCI was higher by 2.92 points but on slightly lower volume of
1.379 bln shares. Losers led gainers 477 to 426.

2. Yesterday was a lackluster day on the KLSE. Our stocks from the property, construction and
plantation sectors failed to garner buying interest. They were sidelined as players wait fresh
incentives or news from the authorities.

3. The oil and gas sector was mixed, with SAAG coming down under profit-taking pressure on the one
hand but SCOMI rising 0.09 to close at 1.52, its highest in the past year.

4. Most of our property stocks, like EQUINE, BRDB, HUNPZTY, YNHPROP, E&O refuse to rally except
for LENITUDE. Their volumes, however, were small, suggesting they are taking a breather.

5. The same goes for MRCB. This stock fell when we expected it to rally. It looks weak, but the small
volume suggests that the big boys are not out yet. Weakness yesterday could be due to force-
selling. We expect a higher volume rebound soon.

6. TEXCYCL was a good pick from us yesterday. It closed higher by 0.055 to 0.725 but as it is nearing
our target, we are calling a sell on rally.

7. Overall, yesterday was a “dull” day as the main index did not rally.

8. Is it time to sell and stay aside then?

9. Based on the technicals of the KLCI, not yet, as it is still within the Bollinger band.

10. But expect a breakout soon – up or down. We sense this imminent breakout from the constriction
of the Bollinger bands. The likelihood is a breakout to the upside, although we do not discount a
surprise from the market on a downside break – although unlikely.

11. Our market’s direction will hinge largely on the direction of the Dow. As such you must continue to
monitor its performance.

12. Our ringgit strengthened by 255 pips from 3.4670 to 3.4415. This should have a positive impact on
stocks.

CONCLUSION:

The Dow rebounded as so did we. We do not expect our market to drop so soon. We should see a strong rally before any plunge, just like how the CPO market “burst” it bubble. We would continue to pick selectively strong sector stocks from the property, construction and oil and gas sector. The oil palm or plantation sector may face some correction as CPO prices retreat. Stay out of palm oil stocks for now. We remain invested as the KLCI is still within the Bollinger bands.

Long-term Upside Targets:1368/1494 (Target amended on 1/6/07).

Immediate downside targets: 1334/1291/1222

Fred Tam is the owner of http://www.fredtam.com and http://www.picapital.com.my F1 Trader Online - Know when to enter & exit the markets.

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