Stock Market in the Year of the Ox
Filed Under (Market News) by Webmaster on 24-01-2009
Tagged Under : chinese lunar new year, stock market, year of ox
Protradeshares wishes Chinese reader a Happy New Year. Below are an article from The Star for your contemplation.
THE Year of the Earth Ox commences on Monday and ends on Feb 13, 2010. Local investors and market punters generally seem to have high expectations as they step into the new Chinese Lunar year, expecting equities to recover after a disastrous showing in 2008, linking an ox to a bull.
Analysis suggests there may be a little more pain coming our way and should there be any solid positive sign of the market shifting trend from bearish to bullish, it should come about in the second half of this year at the earliest.
A positive mindset is always a good thing. But what is most important to a stock player is how the market will fare and whether one will make a lot of money and become wealthy in the coming year.
Obviously, I am no feng shui master and neither am I superstitious. Like many people out there, I depend on authorised access of historical data, charts development, and the help of various tools and resources available to forecast the future movements and trends of the market.
In the distant past of the Year of the Wood Ox from Feb 20, 1985 to Feb 8, 1986 the benchmark Composite Index (CI) of the then Kuala Lumpur Stock Exchange (KLSE), now called Bursa Malaysia, dipped by 95.37 points or 32%, easing from the 300.45 level to end at 205.08.
Prior to that, the market was already on a downward spiral due to a recession and 1985 was just a continuation of the trend.
During that period, the moving average convergence/divergence indicator triggered six rounds of buy signal, but the market failed to carve out a positive reversal pattern, as every rebound owing to oversold reason was not able to attract follow-through interest, which witnessed the key index puncturing, either at the 100-day simple moving average (SMA) or the 200-day SMA.
As for 1997, Year of the Fire Ox (Feb 8, 1997-Jan 27, 1998), the landscape was not any better.
The principal index of the local bourse plunged from 1,254.42 points to the 569.51 level, losing a hefty 684.91 points, or 55% on that Lunar calendar year.
However, unlike in 1985, Bursa Malaysia had a very promising start for that year, extending the upward trend of the Year of the Fire Rat in 1996.
Everyone was cheering and in a state of euphoria, with the CI marching up steadily and looking certain to eclipse the peak of the 1993 “superbull run”, but unfortunately, in a blink of an eye at 1,278.94 points on Feb 26, 1997, the stock market took a beating.
What initially appeared as a typical correction was later proven to be a total reversal, aggravated by the Asian financial crisis.
Except for a brief rally at the tail end of that lunar year, the local market hardly gained lost ground until the key index touched a low of 261.33 on Sept 1, 1998 after the Government pegged the ringgit at RM3.80 to the US dollar.
As such, if one were to track the 12-year cycle of the previous two similar Chinese zodiac animal and make interpretations strictly on the grounds of technical analysis, the outlook appears bleak, as the past indicates that the Oxen always stumbles, before the benchmark CI eventually finds its way.
The reasons are simple. Most will recall that Bursa Malaysia was hit hard during the Asian financial crisis in 1997 and it took the market a painful 18 months to bottom out.
Now, with the health of the global economy at its worst since the “Great Depression” in 1929, which will likely have an impact on the Malaysian economy and corporate earnings, the local bourse may need a longer time to heal and recover.
A peek at the historical daily charts indicates the CI is still in the progress of tracing out a perfect downtrend pattern, as in 1997. Although they dive from a different altitude, the magnitude and the characteristic of the two bears appear to be the same but the chief concern here is the “negative crossing” of the 100-day SMA against the 200-day SMA, which is still intact.
There is no easy way out. After finding the ebb, the CI must show persistent recovery and thereafter, maintain the posture above the 100-day SMA and the 200-day SMA for a period of time to untangle the “dead cross”.
Typically under normal circumstances, the whole process takes about four to six months.
Only if the key index is able to fulfil these important criteria, can it lead the market back to the mending path.
