The Swine Flu Weekend effect >>> Selling Pressure by end-of-day

Our two calls came true yesterday. Firstly, our call for a rebound in the KLCI was justified with the KLCI closing in positive territory yesterday. Our second call which was for the Dow to venture higher after a base building period, came true when the Dow rallied 168 points yesterday.

Dow Jones : Rally triggered by intersection of short term and mid term line The Dow Jones performed exactly as we expected last night. In yesterday’s report, we wrote that after the Dow’s recent base building period, the Dow will venture higher when the red short term line attempts to cut above the blue mid term line. That’s exactly what happened last night when the Dow rallied strongly and even created a new short term high at 8,257. We see the next resistance of the Dow at the 8,400 level.

Swine Flu Watch : Caution Ahead of the weekend
The suspected death toll in Mexico rose to 159, but the number of confirmed deaths from the swine flu was down to 7 from 20 previously. In HK, 5 of the 7 suspected cases have been cleared, while the US saw its first casualty (source: Bloomberg). Yesterday, the World Health
Organization (WHO) also raised the pandemic alert level to Level 5 (source : WHO). Level 5 is the second highest level and basically denotes sustained human-to-human transmission in communities in different geographical locations.

The “weekend effect” is generally typified by a trend of traders selling off positions to avoid any unforeseen negative events in the weekend. The coming “weekend effect” comes with a different twist : firstly, it is an extended weekend due to the Labour Day Holiday tomorrow ; secondly, instead of being “unforeseen”, traders generally expect that the Swine Flu spread may worsen in the weekend. If the Swine Flu spread degenerates into a full fledged outbreak in the weekend, equities markets world wide may get a rude awakening come Monday.

We expect selling pressure to strengthen towards the end of the day as traders seek to avoid any negativity from the Swine Flu spread in the weekend which is continually worsening at this point.

Strategy : Be wary of end of day selling pressure in KLCI
While we maintain our mid term positive view of the KLCI and are also positive of today’s KLCI trading session, we are wary of the end-of-day selling pressure in the KLCI due to the Swine Flu Weekend Effect.

HAPPY TRADING !!!