This article first appeared in The Edge Financial Daily on March 25, 2020

The market was very bearish and volatile in the past few weeks. It was likewise for global markets. Global markets fell into a technical downtrend (most analysts define a bear trend when the index falls 20% from its high). The Covid-19 pandemic has caused havoc worldwide and many countries, including Malaysia, have implemented a movement control order,  preventing non-essential businesses to be open and for people to stay at home.

Many businesses are starting to suffer from not being able to operate and those paid for the day’s work are without income. People are unable to spend. This caused a vicious disruption to economic activities. Governments are now scrambling to find solutions to minimise the disruption by offering economic stimulus packages.

We are living in unprecedented times. We do not know how long this pandemic will last and how it will affect local and global economies. The market is feeling fearful, thus a selldown in the past one month.

For contrarian investors who live by Warren Buffett’s “Be fearful when everyone is greedy and greedy when everyone is fearful”, they are now trying to figure out whether it is time to be greedy since the market is feeling fearful. 

For investors with limited funds, unlike Buffet, it is easier said than done. It is not easy to start accumulating when markets are falling and especially in a panic environment because the market may fall even lower. It is akin to catching a falling knife. Those attempting to do so must have a clear plan of averaging down. Also, we would not know when the market will recover, therefore one must have holding power.

So, the question most market participants are now asking is: “Has the market bottomed out?” I will provide opinions based on my knowledge of technical analysis.

For those following my commentaries, the support level that I mentioned in my previous articles was 1,250 points. When the 1,500-point level is broken, it signals a downtrend as that is the confirmation level of a long-term double top chart pattern. The index has tested this level in the past one week, fell below it and rebounded to the current level at 1,291.4 points yesterday. It rose 2.7% in a week.

The index seems to have found support at around 1,250 points in the past one week, hence a technical rebound is expected as technical indicators are showing the index is heavily oversold. 

Whether the low of 1,207.8 will be the bottom depends on how this rebound will take shape. Based on my observations from previous aggressive declines (circled on the chart), if the index rebounds and is unable to climb above 50% from the decline, the chance of it falling further is high. That was what happened in February 2008. If you noticed, when the index rose above 50% from the decline, the index was sustained and the trend continued.

Today, that 50% is at 1,420 points. Therefore, the market is set to recover if the index is able to climb above 1,420 points. However, if it fails, the market may see a new bottom. The next support level is at 1,005 points, based on a 47% decline from the historical high. The 47% decline was from the historical in 2008 before the index bottomed out.

Bear in mind the FBM KLCI is an aggregate performance of 30 stocks. Other stocks’ performances may be different from the index. It is best to analyse on an individual stock basis rather than using the index as the only benchmark.

The above commentary is solely used for educational purposes and is the writer’s viewpoints using technical analysis. The commentary should not be construed as investment advice or any form of recommendation. If you need investment advice, please consult a licensed investment adviser.