FBMKLCI: Market is being supported well

The Malaysian equity market is still able to hold near the resistance level. The bulls and bears are struggling to set the direction for the market. The market was expected to go into a downward correction but the bullish move in the US and regional markets prevented the market to fall. The bullish sentiment provides confidence to investors and traders to take higher risk to enter into the market. The FBMKLCI closed at 1,186.91 points Thursday, almost unchanged week-on-week with a narrow trading range between 1178.51 and 1,191.66 points.

Market was very bullish on Wednesday, after the DJI rose 1.3% on Wednesday with the Federal Reserve announcing that the US economy was leveling out and maintains the interest rate. Financial stocks lead the market. Investors in Asia were in a in a very bullish mood Thursday. Major indices in Hong Kong, Taiwan, Indonesia and India were up by at least 2%. Thailand’s SET Index rose 1.8%, while the Singapore Straits Times Index rose 1.7%. However, the FBMKLCI only rose half a percent.

The Malaysian economy is showing signs of improvement, thanks to its natural resources. Malaysia’s Industrial Production Index (IPI) fell 9.6% year-on-year in June and 10.9% in the second quarter of this year but was marginally up 0.2% month-on-month. The y-o-y 9.6% drop in June represented an improvement over the 11.3% drop in May and the 11.7% decline in April, and it is the smallest decline since November last year. Soft commodities which Malaysia is a major producer have a positive outlook. The futures price in Bursa Malaysia for crude palm oil is currently trading at RM2,515 per metric ton, up about RM500 or 25% in a month. Rubber (RSS3) futures price in TOCOM rose 37% to JPY213/kg on-month. Crude Oil maintains above US$70 a barrel.

The FBMKLI up trend is obviously strong and is still hovering near the resistance level. The short to long term moving averages are still increasing strongly and the benchmark index is above the averages at a comfortable level. The benchmark index continues to stay near the uptrend channel of S1 and R1. Trading volume remains firm at a daily average of 1.1 billion shares, the same as the previous week. The same price and volume level shows that the market is still uncertain despite the bullish rally in the region.

The bulls are still in control of the current market, but with a weaker strength. Momentum indicators have started to show weaknesses in the bull strength. The Relative Strength Index (RSI) indicator is declining slightly in the short term but is still at the strong bullish zone. The MACD has crossed below its 9-period moving average indicating a divergence in the short and long term uptrend. The Momentum indicator is slowly declining to the neutral zone. The ADX indicator is still slightly declining but the PDI and MDI lines have started to contract.

With the lack of a sense of direction, the market continues to be less volatile. The 20-day Bollinger Bands continues to tighten further last week. The bands started to contract two weeks ago. However, the KLCI is still in the bullish zone. The short term volatility has also declined. The 3-day Average True Range (ATR) indicator declines further to 8 points from 10 points in the previous week.

For the past two weeks, the Malaysian equity market was in a correction period. The weakening momentum, weaker volatility and stagnant market volume clearly shows a consolidating market. There are always opportunities in a correcting market. The long term indicators still show that the market can go higher. A breakout of the current FBMKLCI resistance level of 1,200 points is a sign that the market is going out of the correction and a rally to the next support level at 1,300 points is expected.


Daily FBMKLCI chart with volume as at 13 August 2009 using NextVIEW Advisor Professional

The correction favours the upside breakout as long as the index stays above the support level at 1,160 points. Failing to stay above this level would cause the index to move into a deeper and longer consolidation. The leading Ichimoku Cloud indicator still does not show any weaknesses in the current trend and no sign of major reversal in the next one month. All the indicators are showing that the market is being supported well.

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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.