Malaysia FBM KLCI: Bullish with improved trading volume expected

The economy seems to be in recovery, the equity market seems to think so, not only in Malaysia but the rest of the world. The US Dow Jones industrial Average made a new year high after going into a sideway correction for about a week amid lower jobless claims. The Dow closed at 9,154.49 points Thursday. The FBM Kuala Lumpur Composite Index did not move much and closed at 1,160.66 points, 7.94 points or 0.7% higher on-week. Our neighbour Singapore’s Straits Times Index rose 151.29 points or 6% at 2,636.19 points on-week. Japan’s Nikkei 225 also made a new year high despite jobless rate increasing to 6-year high in June. The Nikkei closed at 10,165.21 points Thursday.

Confidence in the equity market remains firm. Daily average trading volume in Bursa Malaysia last week was 1 billion shares, the same in the previous two weeks. Despite weaker volume, the equity market continues to climb higher and this simply means that there is no selling pressure. The bulls continue to dominate the market as it is able to stay above the resistance level it broke last week at 1,160 points. The KLCI went as high as 1,179.08 points before closing lower on Thursday at 1,160.66 points.

The uptrend momentum that started from mid-July when the KLCI was at 1,060 points has been really strong. The distance between the KLCI and the long term 90-day average then was 7% and the distance now is 12%. The short term moving averages ranges between 1,040 and 1,100 points. The current uptrend can also be identified in the uptrend channel (see S1 and R1 on the chart). The KLCI is currently at the resistance level (R1) of the channel.

The bulls are clearly dominating the market despite the bears trying to take over last month but have started to weaken a little last week. The 14-day Relative Strength index (RSI) indicator continues to make new highs and is above the 70 level. The MACD indicator continues to be above its 9-day average but some weakness last week. The 14-day Momentum indicator also makes new high but has started to slightly decline last week. There are no sign weaknesses from the 14-day ADX which continues to climb higher and but the PDI and MDI lines have stopped expanding.

The 20-day Bollinger Bands continues to expand with the KLCI hovering at the top band. This shows that there is still strength in the KLCI move upwards with wider trading ranges. The short term volatility indicator, the 3-day Average true Range (ATR) maintains at 16 points. The daily momentum in the market is the same as last week. The firm movement indicates a firm direction and this is healthy in trend.

Last week, I have mentioned that the next resistance for the KLCI is at 1,300 points if the KLCI is able to break and stay above the 1,160 points resistance. The current momentum of the uptrend suggests that there is a high change of KLCI moving further upwards and possibly to 1,300 points with some minor resistance levels in between. The correction last week without moving downwards suggests that market is ready for the uptrend continuation next week with improved trading volume.


Daily KLCI chart with volume as at 30 July 2009 using NextVIEW Advisor Professional

The Ichimoku Cloud indicator has started to slightly widen upwards and a reversal is not going to be expected at least in the next one month. The widening of the Cloud also suggests that support is getting stronger and going to be strong in the next one month. If the KLCI falls below the resistance level which it has just overcame at 1,160 points, we may not see a major fall but a minor correction sideways with a slight downward bias. Support level is at the bottom line of the uptrend channel and is currently at 1,100 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.