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Monday, April 29, 2013

Beware guys! It looks like FBM KLCI may PLUNGE SOON


Beware guys! It looks like FBM KLCI may PLUNGE SOON
If you can recall in my earlier article I said that our market has ‘priced in’our elections results. A lot of folks got me wrong. What I meant was the market has already priced in the news that the Parliament is going to be dissolved. Any further news before the election is irrelevant because it has already been incorporated into the price.
Anyhow the market did went into a tailspin on 3rd April when the Parliament was dissolved. But it did recovered most of its losses at the end of the trading day. It shows that the BN or the powers that be were willing to put in all their resources to support the market before the elections.
But the question is how much money did they spend to support the one day-crash on April 3?
Estimated funds used
To begin with let us look at the following chart which is the total market capitalization of listed companies in Malaysia.
The above chart was from Jan 2008 till the end of Dec 2012. As of Dec 2012, the total market capitalization of Bursa Malaysia is valued at US$ 476,340,035,965.27 or put it in layman’s term US$ 476 billion. To work out how much money the Malaysian Government (Plunge Protection Team) spend on every single point to bail out the FBMKLCI on 03/04/2013, we first make the following assumptions


The above chart was from Jan 2008 till the end of Dec 2012. As of Dec 2012, the total market capitalization of Bursa Malaysia is valued at US$ 476,340,035,965.27 or put it in layman’s term US$ 476 billion. To work out how much money the Malaysian Government (Plunge Protection Team) spend on every single point to bail out the FBMKLCI on 03/04/2013, we first make the following assumptions

  1. Exchange rate as of Dec 2012 is US$ 1 : MYR = 3
  2. FBMKLCI close at 1688.95 on 31/12/2012 or 1689 points (rounded up)
  3. Bursa Malaysia market cap as at 31/12/2012 valued at US$ 476 billion
  4. Retail to Institutional Investor 30 : 70 ratio
First we need to convert the total market capitalization of Bursa Malaysia from US$ to MYR which is,
US$476 x 3 = MYR 1.428 trillion.
Then to work out the dollar cost for every point in Bursa Malaysia, we need to divide the market capitalization with the closing points of FBMKLCI on 31/12/2012,
MYR 1.428 trillion / 1689 points = MYR 845,470,692.7
Or, ~MYR 845 million per point. (approximation)
In other words a single point movement on the FBMKLCI in either way will affect market capitalisation of Bursa Malaysia by MYR 845 million.
Next we will find out the percentage of participation by the Government in the stock market through the involvement of its agencies. The participation of the retail investors is said to be in the region of 30% and the rest being the institutional investors. An estimation of about 40% of the daily volume transaction came from EPF, Khazanah, PNB and other GLCs. The rest came from other institutional investors. Our next question is “How much money did the Government’s Plunge Protection Team spend on supporting the market from the low of the day 1632.28 to 1685.4 points towards the market closing?
Here is the calculation,
1685.4 (Closing) – 1632.28 (Low) = 53.12 points
So, the total amount of money spend is,
53.12 x MYR 845 million (per point) x 0.4 (40% participation) = MYR 17.95 billion
The above figure is the estimated amount of money our Government spent on propping up the market on (03/04/2012). That said and now we address our next issue.
Why the Market will Plunge soon?
Our forecast on the Market in our article that was published back in the 1st of April was dead on but not without many criticisms initially. As expected the Market nosedived by about 60 points at one time but the market recovered most of its losses and loss only 0.4 points. Then the market did not look back and make a ‘New High’as we expected. Not only that I received many criticisms and names calling from Malaysian Chronicle readers but also received emails from folks in the funds industry telling me how wrong I was and told me not to misled the public. One gentleman from one of the local financial institution even emailed me at about 3.00 pm on the same day asking me to alert my readers to warn them how ominous the market is. Heck! I just wondered how he can manage his client’s portfolio when he was so emotional during the trading hours of the Market? He has violated one of the tenets for successful Stock Market investing and that is never to make decisions during trading hours. Anyway I just kept my cool and the market did rebound towards the end !!
Coming back to our discussion on the possibility of a Market Plunge in the coming days we present to you the FBMKLCI daily chart below.
Today’s chart is a bit crowded but do not panic. Today I have included a mid-term (spanning several months) Trading Channel on the price chart above. As you can see the market is facing resistance at 1718 points which can be considered major because of three attempts earlier. The following are the 3 attempts earlier to break through the resistance i.e
  1. 15/10/2012 - 1668.32 points
  2. 29/10/2012 - 1679.37 points
  3. 04/01/2013 - 1699.68 points
Secondly, notice that the attempt to break through the resistance was done with reducing volume. When trying to break through resistance with low volume shows that the market participants lack courage and confidence. Normally if it did break through with low volume it will not be able to hold for long.
Thirdly, look at the TOP at both the MACD and Stochastic indicators which I marked it in a blue circle. Previous two TOPs are indicated in red circles. It looks like they are about to turn down and even if the market were to turn up again next week, the probability of it going higher is certainly not bright.
Lastly take a look at the RSI indicator, it is already displaying a divergence signal. This shows weakness in the market and might be the turning point of the market next week.
So I reckoned that its better be safe than sorry, just take your profits off the table and leave some for others. Till next time…

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