FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI): Still waiting for a breakout

The market has been fed with conflicting views about the equity market. Some are positive that the economy is on a recovery and it is a good time to invest now. Some are negative that the current improvements in the economy and the rally in the financial market are just a correction in a longer term bear market. The others have no idea what is happening and are confused. That’s the reason why the market has been in a short term bull trend correction since mid-August and this can be easily identified from the chart. A breakout from the current correction would determine where the market is heading.

I have been expecting a breakout for the past two weeks, especially last week because the market was in a very tight trading range. Normally, a correction is expected to end when the trading range is narrow. The market again was trading sideways last week with the FBMKLCI trading within the immediate support and resistance range between 1,160 and 1,200 points. The FBMKLCI closed at 1,173.66 points, not much change from the previous week. The uncertainty in the market has caused trading volume to shrink further. The daily average trading volume for last week was only 616 million shares as compared to the previous corresponding week’s volume of 720 million. The average was above 1 billion before the market went into a correction in mid-August.

There is not much economic development in the past one week in Malaysia. Only news related to politics made highlights. Regional equity markets were shaken by a sell down in the China market on Monday when the Shanghai Stock exchange Composite Index fell 7% on speculation of rising interest rates but recovered later in the week. Investors and traders should be relieved that the market is closed on Monday for the National Day or they may go into a volatile ride.

Prices of commodities continue to decline because of lower imports from importing countries. Price of crude oil (futures) failed to stay above US$70 after hitting a high of US$75 and is currently at US$68 on the NYMEX. Crude Palm Oil futures on Bursa Malaysia fell 5.4% from last week to RM2,218 per metric ton. Price of rubber (RSS3 futures) fell JPY$5.00 or 2.4% at JPY$202.20 per kg on TOCOM. However, the uncertainties in the market caused price of Gold to increase. The price of gold is currently at US$978 per ounce in the futures market, up about US$20 from the previous week.

Generally the FBMKLCI up trend is still considerably strong. The short to long term 30 to 90-day moving averages are still increasing and the index is moving with the short term 30-day moving average. The 90-day average which provides a long term support level is currently at 1,100 points and the intermediate uptrend channel support level is at 1,160 points. The Ichimoku Cloud indicator which is a leading indicator is increasing with an expanding width and this shows that the trend is being supported well and a reversal is not expected at least in the next one month.

The strength of the trend is neutral as the momentum indicators are providing mixed signals. The Relative Strength Index (RSI) and Momentum indicators are right above the mid-level indicating some bullish strength while the MACD and ADX indicators continue to decline indicating a weak bullish momentum. The PDI and MDI lines are converging showing a correction between the bulls and bears strength. The ADX, PDI and MDI lines are parts of the Direction Movement Index indicator.

Market volatility continues to weaken in the intermediate and short term. The Bollinger Bands continue to tighten and the FBMKLCI is right between the bands. The bands provide a similar pattern on the chart in July when the market went into a correction and resulted in a bullish rally once the resistance is broken. Therefore, we are expecting a breakout soon and the direction depends on whether the FBMKLCI breaks above the immediate resistance level or below the immediate support level. The short term volatility indicator, the 14-period Average True range (ATR) continues to decline from 10 points to 6.5 points and this means that there is no significant short term movement.


Daily FBMKLCI chart as at 3 September 2009 using NextVIEW Advisor

The conclusion is the same as last week. A breakout above the immediate resistance level at 1,200 points may see the index climb higher to test the next resistance level at 1,300 points. A breakout below the immediate support level at 1,160 points may see the index to extend its correction to the next support level at 1,100 points. The market is not moving anywhere if the FBMKLCI continues to trade within the immediate support and resistance levels.

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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.