GIANTS AWAKEN >>> Can the KLCI’s downtrend be cured?

The KLCI is currently stuck in a downtrend. But is there any hope in the horizon that the KLCI’s downtrend can be remedied? What can potentially bring the bulls back to the KLCI?

Giants Awaken : Dow and Shanghai rallying together?
Since its bottom in October 2008, the Shanghai market has been in a steady and strong uptrend. However, it has failed to drag the KLCI upwards as its correlation with the KLCI has been tailing off in the last few weeks.

But what if the Dow awakens?
What if the Dow bottoms out or at least creates a mini rally to compensate for its vicious selling down in the last few weeks? Will a combination of a rallying Dow and Shanghai succeed in dragging the KLCI upwards?

Dow Jones : Possible bottom

After building a base at the 6,500 level, the Dow made a huge statement with a huge 5.8% rally last night. Could this be a possible bottom? Though a bottom is likely but it is still too early to call this the ultimate bottom. But with a strong 5.8% statement after a brief base building process, we do know that the the Dow is poised for a rally in the short term.

Shanghai : Bottomed out and in strong uptrend
It is obvious now that the Shanghai market has already bottomed out on the 28th of October with a low of 1,664. Now the Shanghai market is in a strong uptrend and has already rallied 30% from its bottom.

Combined rally of Shanghai and Dow Jones may pull KLCI up

While we are still negative on the KLCI, a tandem rally between Shanghai and the Dow is too powerful to ignore. As can be seen from the charts, the KLCI’s correlation between the Dow and China has been dropping. However, a combined Dow-Shanghai rally might synergistically restore confidence in the KLCI and global markets and restore the historically high correlations between the KLCI and global markets.
However, we need a more sustained tandem rally between the Dow and Shanghai for it to have any material effects on the KLCI.

Till then, we remain negative on the KLCI. However, the huge overnight Dow rally and a much larger than expected Mini Budget (size : RM60 Billion) which was announced by our Government yesterday, might trigger a rebound in the KLCI in these two days.