Malaysia FBMKLCI: A breakout of the current correction soon to happen

The market made a slight downward correction last week in line with rest of the markets in the region. The FBMKLCI closed 22.76 points or 1.9% lower from the previous corresponding week to 1163.43 points. The trading range for the week was between 1,153.97 and 1,196.46 points. The market is still being supported well despite the correction. The KLCI tested the 1,160 support level and came back above it. It is still above the support line of the uptrend channel (See S1 and R1 on the chart below) that has been developed since March this year. Therefore the up-trend is still intact and because the market is near a support level, an opportunity may arise to accumulate.

In the region, most markets were also down. Singapore STI index fell 2% week-on-week to 2,559.57 points, Hong Kong’s Hang Seng Index declined 2.5% to 20,328.86 points. Shanghai Composite Index fell sharply closing 7.3% lower at 2,911.58 points while the US Dow Jones Industrial Average fell only 0.5% to 9,350.05 points. Commodities prices started to move into a correction as well. Crude Palm Oil futures in Bursa Malaysia fell 8.5% to RM2,301 per metric ton and Rubber futures (RSS3) in TOCOM fell 6% to JPY$196.70 per kg. Crude Oil however increased 2.7% to USD$72.84 a barrel in NYMEX week-on-week.

The averages (30 to 90-day average) of the KLCI continue to increase showing that the uptrend is pretty much intact. The FBMKLCI is being supported by the short term trend and is currently right above the 30-day average. The longer term 90-day average support level is at 1,078 points. The KLCI faced some heavy resistance at 1,190 points as it hovers around this level for about a week two weeks ago before making a correction last week.

Momentum indicators that measure bulls and bears strength are mostly neutral now. The Relative Strength Index (RSI) indicator declined to 55.7%, near the 50% equilibrium while the Momentum indicator has gone below 100 points, which is the mid-point that separates the bulls from the bears strength. The MACD indicator which started to decline in the previous week continues to decline. The ADX indicator has started to also show bearish momentum by declining early last week.

The FBMKLCI has gone below the mid-band of the 20-day Bollinger Bands but still above the bottom band. The contracting bands show that the market is still in a correction and as the bands gets into a tighter trading range, a breakout of the correction is expected to happen soon. Short term volatility however has increased marginally because of the sharp fall early last week. The 3-day Average True Range ATR) is at 10 points, higher than the previous week’s ATR reading of 8 points.

The market has been in a correction for the past three weeks. All the indicators have not shown any signs of which direction the market is heading to at this moment. Further development in the next one or two weeks is crucial to determine the next course of direction. I can’t have any direction bias now because the momentum indicators are neutral. A breakout in support or resistance levels and the volatility expansion will determine which direction where the market might be heading.

Immediate support level remains at 1,160 points and if the KLCI breaks below this level and stays below it, with the expansion of the Bollinger Bands, then we might expect the market to correct further downwards to the next support level at 1,100 points. Resistance level is at 1,200 points and if the FBMKLCI can go higher and stay above this level, buying opportunity exists because the trend is expected to continue upwards to the next resistance level at 1,300 points. With the very tight trading bands, the market is expected to come out of this correction in the next one or two weeks. Therefore monitor closely where the market is going to break out.


Daily KLCI chart as at 20 August 2009 using NextVIEW Advisor

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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.