Kuala Lumpur Composite Index (FBMKLCI): Market expected to trade sideways

The market opened positively Wednesday with a new year high after the Aidilfitri holiday. The FBMKLCI opened 10 points higher from the closing before the holiday to 1,231.33 points Wednesday. However, the bullish sentiment was not sustainable as regional markets start to weaken and investors lock in profits. The benchmark index then fell to 1,219.07 points. Another 1 point is taken away from the index on Thursday as market sentiment becomes uncertain. The FBMKLCI closed at 1,218.06 points. Average trading volume for the past three days was 813 million shares, surprisingly higher than the average from the previous week of 731 million shares because the holiday mood was still fresh.

Market was uncertain mainly because of the markets’ reaction towards the US Central bank announcements after a 2-day policy meeting which seems to be positive. The central bank said that the fed-funds rate will remain near zero level and economic slowdown is probably over with developments in housing but job market may need time to heal. The Dow Jones Industrial Average fell after making a new year high Wednesday and continues to fall on Thursday. Other markets performances were also weak.

The Malaysian central bank is positive on the South East Asian nation economic recovery. The policy makers expect the Gross Domestic Product (GDP) to grow at the end of the year. Foreign investments into the Malaysian equity market inches up steadily over the past few months. The percentage of foreign trading by value has increased to 24% August from 21% June. However, it is still far below the average in year 2008.

US dollar rebounded against major currencies in the past few days and dragged prices of commodities lower. Light sweet crude oil futures in NYMEX fell US$6 or 8% a barrel from US$72 in the previous week to US$66.00 Thursday. COMEX gold fell below US$1,000 after staying above it in the past one week to US$998 an ounce. The 3rd month futures contract for crude palm oil fell RM67 or 3% to RM2,115 per metric ton in Bursa Malaysia in a week. Price of Rubber futures (RSS3) in TOCOM fell 3.8% from JPY$206 to JPY$198.10.

There is not much change in the trend characteristics of the FBMKLCI because there is almost no change in one week. The RSI, MACD, Momentum and ADX indicators are still making new highs and this indicates that the current uptrend rally is still strong. The FBMKLCI is still above the short to long term 30- to 90-day moving averages. The short term 30-day moving average which supports the FBMKLCI trend well is currently at 1,187 points. The longer term 90-day average is at 1,124 points.

The Bollinger Bands expanded further as the FBMKLCI continues to trade near the top band of this indicator. This confirms the trend strength as indicated by the momentum indicators. However, the index has started to move away from the top band in the past two days. The 3-day Average True Range (ATR) indicator increased from 6.5 points to 8 points in a week and this means that the volatility has started to increase marginally.


Daily FBMKLCI chart as at 24 September 2009 using NextVIEW Advisor

What is being feared now is that the positive economic news and fundamentals were expected and has probably been discounted in the price. The stronger volume but declining market shows some selling pressure. Strong catalysts were not present to boost markets which have already recovered more than 50% from the October 2007 down trend. However, indicators are showing strong bullish indication on the current trend, except for the past two days. The leading Ichimoku Cloud indicator is still ascending with the same width. This suggests that the market trend is still strong at least in the next one month.

With mixed indications, the Malaysian equity market is expected to be defensive as always and trade sideways next week as long as the FBMKLCI trades within the immediate support and resistance levels. The immediate support level is currently at the 30-day moving average at 1,187 points while the immediate resistance level is at 1,230 points. If the support level is broken, the index may correct further downwards to the next support level at 1,160 points. However, if the resistance level is broken, the FBMKLCI may head to the crucial resistance level between 1,280 and 1,300 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.