FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI): Time to take a short breather

Markets in the region have started to take a breather, including the Malaysian equity market which seems to be performing better. The FBMKLCI continues to climb another 23.31 points or 2% in one week to close at 1,183.97 points Thursday after breaking the 1,160 points resistance level. The sentiment remains bullish as the benchmark index is able to stay above this level. Neighbour Singapore has taken a breather last week, falling 1.32% at 2,601.50 points while the Dow Jones Industrial Average climbed only 1.1%. The best performances in the region are Vietnam and Thailand where the benchmark indices rose 6.5% and 4.4% respectively. Overall, market is slightly bullish last week.

In the United States, initial job claims fell to a level that is better than expected but continuing claims rose. Same-store sales registered the second worst decline for the year. same-store sales fell for the 11th consecutive month in July, by 5.1% after declining by 5.7% in June, the worst performance for this year. Investors are keenly awaiting government's nonfarm payrolls report for July in order to get an updated read on the employment picture before market opens on Friday.

In Malaysia, economic developments have been positive. According to the Statistics Department in a preliminary release on Aug 5, Malaysia registered total exports of RM45.1 billion in June, the highest monthly value for this year. Exports rose 5.1% month-on-month but fell 22.6% year-on-year. Trading volume in Bursa Malaysia has increased a little with an average daily volume of 1.17 billion shares last week, about 10% more than the previous two weeks. This shows a little more confidence in the equity market.

On the chart, the FBM KLCI up trend looks strong and solid with the short to long term 30 to 90-day moving averages increasing steadily. The benchmark index still moves within the uptrend channel of S1 and R1 and is still maintains near the resistance level (R1) after three weeks. This shows how bullish the market is but chartists fear that being at the resistance level and being overbought, the market may need to take a breather. The longer it takes to go into a correction, the bigger and faster the correction is going to be.

However, the bulls are very dominant in supporting the current trend. This can be shown from the momentum indicators. The 14-day Relative Strength Index (RSI) indicator still maintains above the 70 points level. Bulls are in control if the RSI is above 50. The MACD is still rising but has shown a little weakness. The MACD looks like it’s going to cut below its 9-day moving average or trigger line. The Momentum indicator has also shown short term weakness by declining from 110 to 103. However, the bulls are still in control if the Momentum indicator stays above 100. The ADX indicator still shows no sign of weakening momentum. Overall, the strength of the current up trend is still strong.

The 20-day Bollinger Bands width has started to decline this week but not aggressively and the FBMKLCI is moving away from the top band of this indicator. The volatility has started to ease. The shorter-term volatility indicator, the 3-day Average True Range (ATR) has declined from 16 points to 10 points. These two indicators are showing that the market is currently in a mild correction.

While the market is going through a very short term correction, will the correction last? I think that it is time for the market to take a short breather before continuing its journey because of the weakening momentum in the short term. Based on longer trend and momentum indicator analysis, there is a chance that the market can go higher and I have mentioned earlier in my analysis that the next resistance to test is 1,300 points and the indicators are still supporting the FBMKLCI to move to this level, at least for now.

The trend is expected to continue if it can stay in the uptrend channel and the support level for this up trend channel is currently at 1,120 points but the main support to remain bullish is 1,160 points. The Ichimoku Cloud shows no sign of reversal in the next month and is steadily increasing. The indicator also shows that the trend is supported well.


Daily FBMKLCI chart with volume as at 6 August 2009 using NextVIEW Advisor Professional


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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.