Background

Last Friday, KLCI closed at 200dEMA at 1592.

Technically, this is not a healthy sign, because a healthy market should not be testing the 200 day EMA so soon.  The 200 day EMA is the line on the sand for good rebounds to get nice gains in a healthy market.

KLCI Charts

KLCI is my bellweather index for the state of health for Malaysia stocks, and it's not looking good.   On US Friday close, markets are weak too, so, the spillover on Monday for KLCI is not good.

Additionally, many commentators have said that KLCI is "supported", and so, is not representative of the broader smaller caps stocks that they own, and they are probably right.   

So, this "supported" index is important, and to me, provides the necessary confirmation - the last line of defence so to speak.

Here's the usual EMA charts.

Key observations:

1. The series of Lower Highs ("LH") marked on the chart showed that this is not looking healthy ... what it says is that every time buyers try to push prices up, there are more sellers to press prices down.   In short, the market over the past 2.5 months since Aug low has more sellers than buyers.
   
2. The moves of price going below the 200dEMA the first time in August and the subsequent price move up is healthy.   The second retest on the 200dEMA on 1 November is healthy.   However, the 3rd retest so soon, last Friday, is questionable at best ... 

Here's a 2nd view using my favorite indicator the "Anchored VWAP".  Why I like this view is because:

1. It is anchored on a starting date, allowing us to adjust the start date to what's relevant for our views.  It ignores prices prior to the anchor date.
   
2. VWAP is Volume Weighted Average Price.   It is not a simple average price but Volume Weighted.  Volume weighted means big institutions who creates these big volumes - the price they transact at - gets counted more if their volume is bigger than retailers.   So, this is the Average Price transaction since the Anchor Date, transacted by all players in the market including both retail, institutional, local, foreign, etc.
3. The general interpretation is that when prices trade above the Anchored VWAP, then, the market/index is still generally healthy.   However, when it traded below the Anchored VWAP, it means there are less buyers and more sellers.  In particular, the big buyers are no longer interested to support prices.   This is not good news, because now, the possibility of sellers taking serious control below the Anchored VWAP increases ... these are usually setups for lower prices to come. 
4. Interestingly, the Anchored VWAP is around 1590, i.e price trades above it just a couple of points higher.

Interpretation and Actionable Points

1. For me, it is fortuitious that the past 2+ months after the strong recovery from August, I have started to reduce my holdings substantially.   As of last week, I only had 35% of my peak stock value as I sold nearly 2/3rds of my holdings, to prepare for my trading in the US markets.
   
2. Over the coming day/s and week/s, I will be watching how KLCI and prices in general reacts to the rebound especially at the close.
3. On Monday, likely Bursa and Asian markets will open red, as US markets closed in clear red on Friday.  This increases more uncertainty for Bursa market.
4. Normally, a healthy reaction towards the 200d EMA is a bounce off it, as this is the big line on the sand for traders.   Buyers MUST come in to support the rebound.  If the rebound fails, then, it is clear, buyers have lost control of the market.  Unfortunately, a 2nd retest so soon is not healthy odds.
5. So, next week, my base case is still to expect a rebound to test at least the 100d EMA if not the 50d EMA in green.   A healthy bull must reclaim these 2 lines on the sand.  The rebound is the opportunity to sell and get smaller.  Likely, rebounds are going to be pushed down fast, so, your best chance is to queue at limit before market opens and hope to be filled.  
6. If this rebound fails, then, I will be halving my holdings again to probably around 15% of capital, with 85% cash ... I may change my mind to 0% stock depending on the expected rebounds that I see ... normally, the solid dividend stocks should be more defensive, but even the most defensive stock will eventually capitulates if this turns ugly.
7. Let's hope it doesn't turn ugly, but hope is not a strategy ... 
8. The action is get smaller as price goes lower.
9. Yes, it means that if it rebounds, then, you have realized some losses.   After sale, watch for a logical place to enter.  On healthy signs.  Yes, it means giving up some of the gains in the past.   We are still highly profitable, but if markets are weak, we find stronger markets and for me, as I have said over the past 3 months, we look to the US markets for 2 reasons.  First, it is the stronger market and second, if it is weak, it is easier to short there than in Bursa where I can't make monies on the downside.

Summary and Conclusion

As of last Friday, KLCI is at a critical juncture - in the shortest amount of time, it is already testing the 200dEMA 3 times the past 3.5 months.  It is also going to test the Anchored VWAP, my favorite indicator for market health.

It doesn't help that last Friday, US markets closed in serious red, suggesting spillovers to local markets.

I am expecting a red day on Monday.   

I am looking at the rebound retest - it needs to show me that the market has strength ... it needs to reclaim either the 100dEMA or the 50dEMA personally.

If it fails, then, I will sell and use the proceeds to trade in the US instead.  I may keep a small position like 5%, 10%, 15% of capital in Bursa depending. 

Good luck.

Disclaimer:  As usual, you are fully responsible for your own investment and trading decisions.