Kuala Lumpur Composite Index: At Crucial Resistance Level

Equity markets around the world including Malaysia remains bullish throughout the week despite having weaker momentum. The KLCI climbed to the expected resistance range between 1,040 and 1,055 points. The KLCI closed at an eight-month high at 1,042.63 points last Wednesday. The KLCI went as high as 1,050.45 points on Thursday but selling pressure pushed the KLCI to close at the intra-day low of 1,035.56 points. The KLCI is up 23.57 points or 2.3 percent on-week and 68.96 points or 7 percent on-month. Average daily trading volume has declined to 1.8 billion shares, a decline of almost 42 percent from the previous corresponding week.

The KLCI is still in an uptrend. The KLCI is above all the three short to long term 30- to 90-day moving averages which are increasing. However, the momentum of the uptrend continues to weaken. The trend has already shown sign of weakness for the past three weeks but is still being supported well. The KLCI is 12.4 percent higher than the long term 90-day moving average which is currently at 921 points, a little higher than the previous corresponding week. This shows that there is some strength in the upward movement on-week.

The momentum indicators like Relative Strength Index (RSI), Average Directional Index (ADX) and MACD are still in divergence with the current trend. These indicators that measure price rate-of-change indicate slowing momentum in the uptrend. The increasing volume for the past eight weeks when the KLCI bounces off the low has started to become a lot weaker. This too signals a weaker momentum in terms of price-volume relationship.

Market volatility is higher than average but remains firm. The Bollinger Bands width is almost the same as the previous week. Based on this indicator, the KLCI is still bullish because it still stays above the middle band which is a 20-day moving average. The shorter term volatility indicator, the 3-day Average True Range (ATR) has slightly increased and this indicates that volatility in the KLCI has increased in the past few days. The Stochastic reading is back to the overbought reading for the fourth time since late March this year. The last time this happened when the market was bullish from 2006 to late 2007.


Daily KLCI chart as at 21 May 2009 using NextVIEW Advisor Professional


The KLCI is currently at a crucial resistance level between 1,040 to 1,055 points based on the analysis I made few weeks ago. There are more signs that a pullback is expected any time soon. The volume peaked last week and price was almost at the peak if not for last Wednesday’s rally. The momentum indicators have not shown any improvement since going against the trend 2 weeks ago. The next resistance level at 1,076 points is a Fibonacci level that once broken, signals the end of the long term down trend.

Support level is now between 920 and 935 points, based on the 30 and 60 day moving averages. Buying at current levels imposes high risk to the investor because the upside is lesser than the downside, technically. However, many investors are willing to take higher risks because price keeps getting higher. It is always tempting to get into the market now especially those who are still in the sidelines, but be cautious and wait for a pullback before making any decisions for short term trading/investment. My long term forecast is still between 600 to 650 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.