VIX Indicator

Market players are waiting to see whether US officials will be able to come to an agreement to the bailout package. The market has been plagued by high volatility lately.




The VIX closed at 34.73 on Friday. It spiked to a high of 42.16 on 18 Sep. Assuming that you buy into the Dow Industrial Average when the VIX went above 40 and hold the trade for approximately 1 year, the trading result is as follows:

Entry Date	Entry Level	Exit Date	Exit Level	% Change
1-Sep-98	7583.09	7-Sep-99	11079.08	46.1
4-Sep-98	7737.32	10-Sep-99	11087.00	43.29
8-Sep-98	7964.91	13-Sep-99	11027.40	38.45
11-Sep-98	7583.61	16-Sep-99	10795.77	42.36
14-Sep-98	7936.08	17-Sep-99	10745.38	35.4
1-Oct-98	7749.42	6-Oct-99	10399.77	34.2
2-Oct-98	7631.50	7-Oct-99	10588.34	38.74
5-Oct-98	7760.75	8-Oct-99	10534.52	35.74
6-Oct-98	7733.97	11-Oct-99	10649.76	37.7
7-Oct-98	7754.82	12-Oct-99	10648.81	37.32
8-Oct-98	7734.48	13-Oct-99	10412.31	34.62
9-Oct-98	7806.57	14-Oct-99	10230.89	31.05
12-Oct-98	8038.03	15-Oct-99	10286.61	27.97
13-Oct-98	7982.68	18-Oct-99	10018.45	25.5
14-Oct-98	7925.01	19-Oct-99	10117.54	27.67
18-Sep-01	8922.70	23-Sep-02	7984.77	-10.51
20-Sep-01	8375.72	25-Sep-02	7687.16	-8.22
21-Sep-01	8356.56	26-Sep-02	7844.62	-6.13
24-Sep-01	8242.32	27-Sep-02	7996.01	-2.99
23-Jul-02	7785.55	28-Jul-03	9284.92	19.26
24-Jul-02	7698.46	29-Jul-03	9268.19	20.39
5-Aug-02	8312.92	8-Aug-03	9127.36	9.8
6-Aug-02	8049.93	11-Aug-03	9189.62	14.16
7-Aug-02	8282.25	12-Aug-03	9218.12	11.3
20-Sep-02	7945.93	25-Sep-03	9425.58	18.62
25-Sep-02	7687.16	30-Sep-03	9378.10	22
8-Oct-02	7425.82	13-Oct-03	9675.72	30.3
9-Oct-02	7499.96	14-Oct-03	9763.27	30.18
10-Oct-02	7286.34	15-Oct-03	9824.09	34.83
19-Sep-08	11027.51	Open	Open	1.05

You have a total of 30 trades with 26 ending with a profit.

IOI Corporation

All eyes will be on whether the US government is able to agree on a bailout package this Sunday. Although the bailout package may not be able to solve the current economic problems, failure to agree on a bailout package will definitely be negative for the stock market.

Commodities related counter have been affected by the expected slow down in the global economy which will result in lower demand and hence lower commodity prices. IOI Corp has not been spared the down swing as well.

The chart is looking better compared to a few weeks ago.



The MACD line has cut above its signal line, indicating a possible up move. There is also a divergence between price and MACD line.

Another promising sign is the decline that started from 23 Sep occurred with diminishing volume.

One possible way of playing this stock is to wait for a breakout of RM 4.86. This will reinforce the MACD divergence signal. Once entered, the stop loss level can be set at RM 4.36.

KLCI Fibonacci Analysis

The KLCI is still in a down trend. Based on Fibonacci analysis, the index is set to drop below 1000 points.

Lets do a Fibonacci analysis on the recent down move. From Point A to Point B, the index dropped from 1436 to 1157. The rebound to Point C (1305) retraces 50% of the move from A to B. Since the index did not clear Point A, the down trend was still in place and the projected objective point rests at 1026 which is calculated from the following:

Objective Point = 1305 – (1436-1157)
= 1026

This objective point was near Point D of 1089.

The current up move from Point D to E did not clear the 38.2% retracement level. The objective point for this move will be:

Objective Point = 1164 – (1305-1089)
= 948

Hence based on Fibonacci analysis, the index is likely to go below 1000 points.

IOI Corp

IOI Corp has been affected by the fall in palm oil prices. The price is now near the lower Bollinger Band.

The –DI is slightly above the +DI with the ADX decreasing from a high level indicating that the down trend is slowing down.

MACD line is about to cut the MACD Signal line which bearish if the cutover occurs. However, if the stock price is able to rebound from current levels, there is likelihood that we will see divergence in MACD as well as RSI. Divergence usually indicates a reversal in trend.

KLCI Sep Performance

Historical results from 1994 to 2008 have shown that September is not a very good month to have a long position.

Entry Date	Entry Price	Exit Date	Exit Price	% Change
1-Sep-94	1,135.20	30-Sep-94	1,131.08	-0.36
1-Sep-95	1,014.96	29-Sep-95	992.16	-2.25
2-Sep-96	1,117.21	30-Sep-96	1,130.76	1.21
2-Sep-97	811.15	30-Sep-97	806.79	-0.54
1-Sep-98	294.76	30-Sep-98	376.61	27.77
1-Sep-99	766.01	30-Sep-99	683.18	-10.81
1-Sep-00	795.26	29-Sep-00	721.85	-9.23
3-Sep-01	686.35	28-Sep-01	614.57	-10.46
2-Sep-02	710.75	30-Sep-02	644.61	-9.31
2-Sep-03	743.17	30-Sep-03	736.37	-0.92
1-Sep-04	828.96	30-Sep-04	846.76	2.15
1-Sep-05	913.08	30-Sep-05	925.03	1.31
1-Sep-06	959.04	29-Sep-06	967.74	0.91
3-Sep-07	1,283.93	28-Sep-07	1,339.43	4.32
2-Sep-08	1,097.08	Open	Open	-0.92

In total there were 6 winning September months, about 42% that your position will be higher compared to the beginning of September. Let’s cross our fingers and hope that there will not be a double digit percentage losses this month. Do trade with care.