KL composite Index downward rally expected to continue

The KLCI closed at 838.39 points, 3.55 percent lower than the previous corresponding week. The trading range was 27.7 points, between 836.51 and 864.20. The previous corresponding week trading range was only 8 points. The volatility is caused by the selling pressure. The volatility started to expand when the KLCI broke the support level of the correction 2 weeks ago.

The down trend on the KLCI continues with more selling pressure in the short term. The short to long term 30 and 90 day moving averages are currently near the same level and heading downwards. Momentum indicators are still showing very strong bearish strength. The RSI indicator continues to dive and is now at the five months low, although price is just at three months low. The ADX indicator is also indicating that there is no slowing down in bearish pressure. The PDI and MDI in the ADX indicator are still diverging.

I have mentioned earlier that the market volatility has increased and this is supported by the expanding Bollinger bands. The KLCI continues to stay at the bottom band. A rebound was expected but did materialize last week because of heavy selling pressure. The Stochastic Oscillator is at the oversold range but no signs of price reversal.

Daily KLCI chart as at 12 March 2009 using NextVIEW Advisor. Click on chart for larger view.

The KLCI is currently at three months low and is likely going to test the 5 months low at 800 points but a technical rebound is expected early this week because of the market being technically oversold. Furthermore, the US equity market has started to rally upwards in the past few days with banking stocks leading the market. The Dow Jones Industrial Average closed above 7,000 points level after staying below it for about two weeks. This provided some confidence in the market, not only locally but globally.

The KLCI is expected to face strong resistance especially at 880 points level. Generally, I think that the market is going sideways next week. The long term forecast is still at 550 points as long as the KLCI stays below 940 points. Do not be too excited with the positive developments in the US because bears are still in control of the market and they would for opportunities to sell whenever the market rally upwards. I’d expect the rally to be short. For the US market, the Dow Jones Industrial average s expected to rally the to the next resistance level (previously a support level) at 7,400 points.

KLCI Short term target (3 months): 800 points
KLCI Long term target (9 months): 550 points

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Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

Come and visit Benny Lee at ATIC Kuala Lumpur on the 14th and 15th of March 2009