KLCI set new direction - downwards

The KLCI has broken the support level of a “wedge” chart pattern at 880 points. The three months old wedge pattern indicates correction. This simply means that the correction in the major down trend in the past three months has ended and the outcome is that the bears have beaten the bulls. The momentum of the trend has also turned bearish, but not strong. The short term 30-day moving average has started to turn bearish since late February and is now in the same trend as the long term 90 day average. The Relative Strength Index (RSI) indicator has started to create new lows and the weekly MACD has been down for three consecutive weeks.

Market volatility has also changed with stronger bear strength. The Bollinger Bands, which monitors market volatility, has just expanded on the downside. When market volatility expands, price is expected to move into a direction and in this case, downwards. Market volume has started to increase marginally higher in the last two weeks as compared to the previous weeks. This means that there is some selling pressure.


Daily KLCI chart as at 6 March 2009 using NextVIEW Advisor. Click on chart for larger view.

Warren Buffet once said “Be greedy when others are fearful and fearful when others are greedy”. Mr. Buffet has started buying months ago when there was panic selling. However, price continues to fall. I believe that the fear is not over and there should be another round of fear coming. In a statement recently, he mentioned that the US economy fell off a cliff. Buffet who is still optimistic with the future outlook has not regret buying into the market and encouraging investors to also do so in October. The Dow Jones industrial average has fallen from 8,852.22 to close at 6,626.94 on Friday. Buffett stands by his overall advice that owning stocks over time will profit people greater than so-called safe investments. Well Mr. Buffet, we do not have deep pockets like you do.

Now that the KLCI has broken the 880 points support level, it has set a new direction in the short term. It looks like the 940 target for the first quarter is fell short by 3.37 points as the KLCI went to a high of 936.63 on the 7th of January. The wedge pattern has a price objective at 740 points. Therefore the short term target is 740 points. The long term target remains at 500 to 550 points. The price map below shows the direction forecast short term (in blue) and the longer term (in red). Both forecasts are valid as long as the KLCI remains below 940 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