Markettrek (22/09/03): Ichimoku chart shows bearishness.

Week on week, the benchmark Kuala Lumpur Composite Index (KLCI) surprised us
with a 3.23-point or 0.44 percent post-Budget gain, to close at 744.17.

Surprising because this post-Budget “rally” is considered rather “unusual”. For the past
14 years studied, this is only the second time out of 14 years, where the KLCI registered
a positive close after the first week of the Finance Minister’s Budget speech. Post-
budget first week performances have always ended on a bearish note for the last 12 of
14 years.

The only other occasion where a positive close was registered was in 1992, when the
KLCI rose 1.78 percent on the first week post-Budget 1993 (speech was on 23/10/92).
In 1992, all 4 weeks post-Budget registered positive closes, which leads us to ask if this
abnormal stock market behavior will continue into next week, and the next three weeks
– just like in 1992?

Let us take a look at the charts and see what they say. This week, we decided to
introduce a Japanese candlestick chart called “Ichimoku Kinko Hyo” which simply
means “a glance at an equilibrium chart”. Ichimoku, which means “at a glance”, was the
pseudonym used by a Mr. Goichi Hosoda who devised the method in the 1960s when
trading stocks.

The Ichimoku chart consists of five lines, which is very similar to the moving average
studies. The first two lines are two moving averages, computed using the day’s range
(high plus the low divided by two) instead of its closing price. The first moving average
is a 9-day moving average called the Tenkan-sen, and the second moving average is a
26-day moving average called the Kijun-sen.

The crossover of the two lines gives buy and sell signals as with conventional moving
averages. To these, the third and the fourth lines that make up the “clouds” are added.
The third, known as the Senkou Span A, is calculated by adding the Tenkan and the
Kijun values and dividing by two. This line is then plotted 26 days ahead of the last
complete day’s trading.

The fourth line, imaginatively called the Senkou Span B, is calculated by finding the
highest price of the past 52 days, adding it to the lowest price of the last 52 days, and
dividing by two. This is then plotted 26 days ahead. So, although they have the same
names, their construction is very different.

The clouds or “Kumo” in Japanese, is the area between the Senkou Span A and B. The
clouds have a variety of uses and add a completely new dimension to the chart. Firstly,
if today’s candle is above the cloud, the trend is for higher prices. The top of the cloud
is the first level of support and the bottom of the cloud is the second level of support.
The opposite is the case when candles are below the cloud. The Senkou Span A and B
now become the areas of resistance. Very often the market seems to move through the
first support/resistance level and fails somewhere in the middle of the cloud. When this
happens one watches the shape of the daily candlesticks to see if they give a reversal
signal. The thickness of the clouds is also important. The thicker clouds usually imply
less likelihood of a violation. Thinner clouds suggest a stronger probability of a break
through.

The fifth line is called the Chikou Span. It is merely today’s closing price plotted 26
days behind the latest daily close. If the Chikou Span is trading above the candlestick of
26 days ago, then today’s market is said to be in a bullish long term phase. Conversely,
if Chikou Span is trading below the candlesticks of 26 days ago, then today’s market is
in a long-term bearish phase. The same idea applies to Chikou Span and the clouds. If
Chikou Span is above the clouds of 26 days ago, this suggests a bullish outlook and vice
versa.

Applying these principles to the local indices, their readings show that our market is
short-term bearish, as the Tenkan-sen had crossed below the Kijun-sen for all sub-
indices making up the KLCI, the Second Board Index and the Mesdaq index. Look for
the market indices to pull back to the supports represented by Senkou Span A and B.

However, for the longer-term, the majority of the market indices are in a bullish phase,
as the Chikou span is trading above their candlesticks 26 days ago as well as above the
clouds of 26 days ago. – The writer is a full member of the Society of Technical
Analysts, U.K..
 KLCI - ICHIMOKU KINKO HYO DAILY CHART
Tenkan-sen about to cut below Kijun-sen = Warning of Short-term bearishness
KLCI, Ichimoku
When Tenkan-sen < Kijun-sen = Bearish signal 765
760
755
750
Kijun-sen 745
Tenkan-sen 740
735
730
Support 1 725
721 720
715
Chikou span 710
Support 2 705
704 700
695
Clouds as resistance areas 690
685
680
Price above cloud 675
- Trend bullish 670
665
650 on 23/5/03
660
Clouds as support areas 655
650
645
640
Senkou Span B 635
Senkou Span A 630
625
620
Buy signal 636 0n 16/5/03 Tenkan-sen > Kijun-sen 615
610
605
y March April May June July August September Oc

EMAS - ICHIMOKU KINKO HYO DAILY CHART

Tenkan-sen already cut below Kijun-sen = Short-term bearish signal
EMAS, Ichimoku
Tenkan-sen< Kijun-sen = Bearish signal

185

180
Support 1
178

175

Support 2 170
169

165

160

155

150
Tenkan-sen > Kijun-sen = Bullish signal

24 3 10 17 24 31 7 14 21 5 12 2 9 16 30 7 14 28 4 11 18 25 2 15 22 29 6
March April May June July August September Oct
 WEEKLY % GAIN/LOSS

Rank Bourse 12/09/CLOSE 19/09/CLOSE +/- % Gain / Loss

1 KLSE SBI 113.69 120.99 7.30 6.42
2 MESDAQ 142.91 151.98 9.07 6.35
3 KLSE Tech 52.79 55.4 2.61 4.94
4 JAPAN 10712.81 10938.42 225.61 2.11
5 TAIWAN 5645.28 5757.91 112.63 2.00
6 INDONESIA 578.375 585.671 7.30 1.26
7 KLSE-EMAS 182.18 183.85 1.67 0.92
8 AUSTRALIA 3195.2 3223.4 28.20 0.88
9 HONG KONG 10883.52 10968.42 84.90 0.78
10 KLSE-CI 740.94 744.17 3.23 0.44
11 SINGAPORE 1584.27 1589.86 5.59 0.35
12 THAILAND 568.37 566.07 -2.30 -0.40
13 KOREA 767.46 748.25 -19.21 -2.50

12/09/CLOSE 19/09/CLOSE
1 NASDAQ 1855.03 1905.7 50.67 2.73
2 DOW 9471.55 9644.82 173.27 1.83

TABLE 2 : KLSE POST-BUDGET PERFORMANCE 1990-2003

Post- Budget Performance

Budget Date of KLCI +1 week +2 weeks +3 weeks +4 weeks Market
Year Budget Speech on speech date % +/- %+/- %+/- %+/- direction
2004 12/9/03 740.94 0.44 n.a. n.a n.a. n.a.
2003 20/09/02 672.64 -3.76 -4.24 -5.18 -3.03 Down
2002 19/10/01 615.02 -0.42 -2.99 -2.53 3.30 Down
2001 27/10/00 791.08 -3.89 -4.88 -7.08 -9.79 Down
2000 29/10/99 742.87 -2.90 -2.87 -1.29 0.41 Down
1999 23/10/98 419.72 -3.43 8.00 10.81 9.97 Up
1998 17/10/97 794.8 -12.89 -16.37 -10.99 -14.76 Down
1997 25/10/96 1172.95 -0.04 0.57 1.64 3.84 Up
1996 27/10/95 962.64 -3.96 -6.56 -7.66 -4.18 Down
1995 28/10/94 1113.04 -3.47 -7.47 -5.76 -9.12 Down
1994 29/10/93 971.99 -2.78 0.05 1.33 0.45 Flat
1993 23/10/92 630.07 1.78 3.89 3.26 1.99 Up
1992 01/11/91 537.03 -0.16 1.62 0.37 -0.92 Down
1991 14/12/90 508.11 -2.75 -1.42 -2.05 -5.12 Down