Malaysia KLCI - Path Still Not Decided

Bearish resistance has prevented the KLCI to go above 900 points last week. Despite the strong promise made by US President Barack Obama to revive the financial industry and economy, the markets reacted negatively as the economy is going to a record deficit spending. The US benchmark Dow Jones Industrial Average (DJI) fell to its lowest since May 1997 bringing the stock market back to 12 years ago. The DJI is currently at 7,270 points and I am expecting it to find the next support level at 6,000 points in the intermediate term. The KLCI continues to stay below 900 points at 890.67, trading between 883.81 and 898.74 points last week.

The Malaysian market is still pretty much in a correction. Technically, the KLCI is still in a “wedge” chart pattern that looks like a triangle. The market I still hesitating to move into a direction. It has already been more than three months. The short to long term averages have started to converge and the KLCI is trading within these averages, confirming the sideway market. However, the long term trend is still down because the 90-day Moving Average (90SMA) is still declining. The market is at a crucial point of time. Momentum is still neutral as indicated by the Relative Strength Index (RSI) which has been hovering around its 50% level.

The market volatility continues to contract further. The Bollinger Band width is not expanding yet. The market is being pressured from both sides. The tightening of the Bollinger Bands and the Wedge pattern which is nearing the apex confirms this. We are still waiting for a breakout. A breakout above resistance level of the wedge pattern would indicate that selling pressure has eased and price is expected to rally. However, a break below the support level of the wedge pattern would indicate that the buying support is over and price is expected to continue the down trend.


Daily KLCI chart as at 27 February 2009 using NextVIEW Advisor. Click on chart for larger view.

The market is still divided over the direction of the market. One third is convinced that the economic stimulus packages can turn the financial market and economy around and the other one third is not convinced. The last one third just has no idea. The path is still not decided. There is also no evidence yet on which direction the market is expected to head at least until it breaks the support or resistance level of the corrective wedge pattern. The wedge support and resistance level is at 880 and 910 points respectively.

We will wait for further developments in the market to determine the direction the market is heading. A break below 880 points would see the KLCI making its way to test the 800 points support level created in October last year. If it breaks the 910 resistance level, I would expect the KLCI to find strong resistance at 940 points. Therefore the potential upside is less than the downside. Since the major trend is still down, the bias is at the downside. The long term target still remains at 550 points as long as the KLCI stays 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.