Kuala Lumpur Composite Index (KLCI): Bullish sentiment expected to continue

The equity market extended its bullish run last week as investors continue to be bullish amid positive developments in the global economy particularly in the Asian region. In the second quarter, the Dow Jones Industrial Average climbed about 11% while Japan’s Nikkei 225 jumped 23, China Shanghai Composite Index rose 25%, and India 53%. The benchmark KLCI rose 43.27 points or 3.9% on week to close at 1,152.15 points. The KLCI tested the 1,160 points resistance level I mentioned in the past two weeks on Wednesday but failed to stay above it. The index already raised 7.15% on-month and 37.8% from the low this year.

The economy in the Asian region has been positive in the past few months. Industrial production increased as demand from major importing countries in the US and China has improved. The question is now whether the short term economic growth can be sustained and analysts’ views are mixed. However, market confidence is still generally strong. Most markets are making new highs for the year in the past few weeks, overcoming technical resistances. Trading volume in Bursa Malaysia last week remains steady with 1 billion shares traded averagely a day, the same as the previous corresponding week.

The bulls were back as I mentioned in my previous article and last week they dominate the market. The uptrend started to become healthy again with the short to long term 30- to 90-day moving averages are moving in the same direction upwards. The moving averages ranges between 1,020 points and 1,080 points. The one month correction which began in mid June has ended last week. The KLCI is now comfortably 13% above the long term 90 day average.

Momentum indicators are showing strong bullish strength. The RSI indicator has gone above the 70 level after being below it for more than one month. The MACD indicator continues to stay above its 9-day average. The momentum reading is currently at 108, a level not seen since April this year when the market was in the beginning of a bullish rally. The ADX indicator continues to increase with the PDI and MDI lines still expanding.

The market volatility continues to expand in the upside after breaking out last week. The Bollinger Bands continue to expand further. The KLCI continues to stick at the top band for the whole of last week. The last time the Bollinger Bands expanded this much was in early April when the KLCI was at 930 points. The shorter term volatility indicator, the 3-day Average True Range has weakened a little from 18 points in the previous week to 16 points this week. This indicates a slightly lower momentum on a daily basis.

With the healthy trend and good bullish momentum, can the KLCI rally higher than the 1,160 resistance level? If you have not read my past articles, the 1,160 points level is a 50% retracement level of last year’s bear trend where the KLCI dropped from 1,524 points to a low of 801 points. Purely based on technical analysis, yes, there is a high chance that the KLCI may be able to break above 1,160 points. Bullish sentiment expected to continue with a greater extent if the 1,160 points resistance level is broken. If it does break this level, then we may look at the next technical resistance level at 1,300 points.


Daily KLCI chart with volume as at 23 July 2009 using NextVIEW Advisor Professional

The leading indicator, the Ichimoku cloud indicator is still thin and this is because of the one month correction on the KLCI in mid-June. If the market continues to be bullish the cloud may start to expand in about two weeks time, providing another good support to the KLCI. The KLCI is also being supported by a linear up trend line from March this year. The immediate support level is this trend line and is currently at 1,100 points. The Stochastic indicator has been overbought since last week and we may expect an immediate pullback, especially when the KLCI is at the current resistance level.

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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.