ZLBT Chats

Monday, September 21, 2009


In a perfect world, we'd all invest every dime in winning stocks each and every trading day. Unfortunately, I haven't seen that kind of trading world yet. So as we approach each day, we must assess the risks in the market and determine an appropriate trading strategy. At times, it makes good sense to go "all in" (Sailang?). But most of the time, the nature and size of our trades should be based on the risks inherent in the market. ZL had always advise BT Traders to deploy some market cautions and I still maintain it.

It doesn't mean the market cannot go higher and that you cannot trade on the long side. It simply means you should do so much more selectively and with stops & cutlosses in place.

The good news is that price/volume trends (PVT) remain very strong and this indicator is the most important of all, bar none. There's a laundry list of negatives that we must respect though. The MACD has been struggling on the daily chart across all of our major indices for the last 3-4 weeks. There's also a negative divergence on both the daily & weekly charts, as the FBM KLCI charts below shows:

Stochastics and RSI are both near-term overbought across our indices as well. They could use a pullback to help consolidate recent gains. Without a pullback, the overbought conditions last longer and generally encourage a steeper selloff when one finally occurs. I'd prefer to see a little unwinding of these oscillators now rather than later.

Finally, and perhaps most importantly, the masses are jumping into positions based on volume increment side. This is a MAJOR warning sign to me as retail traders, unfortunately, rarely walk away with the pot of gold.

Can the market go higher from here? Absolutely, and without a trace of pullback too. Overbought can stay overbought. There are NO guarantees in the market. Would I be "all in" expecting that continued bullish behavior? Absolutely NOT. The risks are too high. I believe you have to be very, very selective in trading the market at this level. While shorting the FKLI has been a practice in futility for several weeks, the money has been made on the long side during this stretch.

I continue to look for the stocks with the very best volume trends, suggesting accumulation. The best time to enter those stocks is either just as they make a new breakout on confirming volume OR on a pullback to retest a previous breakout level or a major moving average. Personally, I prefer the latter as risks are better and more easily controlled.


For weeks we have been looking for a correction, and a time or two we experienced some trepidation that the bull market might be over, but all the market has done is produce a series of minor pullbacks.

Market internals have continued to remain overbought.

Bottom Line: Many market indicators are overbought and topping, presenting us with yet another setup for a correction.

A bull trend continuation requires daily volume and FBM KLCI had been running near empty for too long. The correction will arrive >>> delayed but still on schedule for October 09.

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