Kuala Lumpur Composite Index: Weaker bullish momentum

The KLCI closed at a new 2009 high at 1088.96 points, breaking the 1,076 points resistance level. The KLCI is 25 points or 2.3 percent higher from the previous week. The price trend is still inherently strong with the short to long term moving average still increasing and the KLCI moving higher above these averages. The KLCI is 11 percent above the long term 90 day moving average (90-SMA), another 1 percent higher from the previous week. The Ichimoku Cloud indicator is still expanding strongly and shows no sign of major trend reversal at least in the next one month.

In the longer term, the momentum of the trend is still strong with most momentum indicators like the 14-day RSI, 14-day Momentum and MACD indicators above the mid-point which separates the bulls (above mid-point) and bears (below mid-point) strength. The Average Directional Index (ADX) indicator continues to increase since last week and this confirms the strong up trend momentum. However, in the short term there is a divergence between these indicators and the KLCI. Therefore, the short term momentum of the KLCI is a little weak.

The expansion of the Bollinger Bands continues with KLCI being above the middle band (the 20 day moving average). This is because the KLCI keeps making new highs and force the bands to increase higher. Like the other momentum indicators, the Bollinger Bands suggests that there is still strength in the current uptrend momentum in the longer term. The shorter term volatility indicator, the 3-day Average True Range (ATR)indicator however has declined and this also supports the weakening short term trend. The ATR indicates a volatility of about 9 points, 25 percent lower than the previous week’s 12 points.


Daily KLCI chart as at 11 June 2009 using NextVIEW Advisor Professional

In the long run, I am expecting another strong downward pressure in the 3rd quarter onwards earlier this year with the KLCI probably going to 600 to 650 points and the forecast is valid if the KLCI stays below 1,076 points. Now that it has gone above this level, is the forecast still valid? The KLCI has tested and broken the resistance levels that I have set earlier at 940, 1,040 and now 1,076 points. Last week, I have mentioned that if the KLCI breaks and stay above 1,076 points, there is a chance that KLCI moving into the next resistance level at 1,160 points.

Now, I am still expecting the KLCI to have one more selling pressure but my forecast will not be so low anymore. With the adjustment in the current movement, my technical forecast in the long run (probably end of this year or earlier next year) would be 700 points, if the KLCI stays below the next resistance level at 1,160 points.

In the meantime, it would be risky to get into the market now because of two reasons. First, the market has been overbought for a long time with a steep up trend which is normally not sustainable. Second, the short term momentum is weak and the market may face more resistance and needs strong catalyst to move higher. So there is little potential in the upside.

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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.