Bursa Malaysia KL Composite Index (FBMKLCI): Set to test newer highs

Markets all over the world rebounded last week after moving into a correction for the past two weeks. The Malaysian market, benchmarked by the FBMKLCI rebounded exactly after testing the Bollinger Bands’ middle band which is a 20-day moving average. The FBMKLCI increased 21.74 points or 1.8% from last week to settle at 1,230.09 points Thursday. Thursday marks the biggest increase in a day for last week’s trading period with a 1% increase. The market is currently testing the immediate resistance level and market participants are optimistic about the equity market outlook.

However, trading volume only increased slightly. The average daily trading volume last week was 750 million shares and the previous week’s average was 662 million. Therefore, not many investors are optimistic and the majority is still staying in the sidelines. The market was spooked by a trading error from a foreign broker on KL Kepong shares which may cost the broker half a million ringgit losses. The market was bullish despite lacking positive leads locally so I guess that no news is good news.

The US Dollar continues to slide against major currencies last week, continuing its down trend. This again has pressured prices of commodities to increase. Price of Gold in COMEX continues to make historical highs and is currently at US$1,050 an ounce, increasing 5% in a week. Crude Oil in NYMEX continues to stay around US$70 a barrel. Rubber futures in TOCOM rose about 6% in a week to JPY$214.80 a kg. However, Crude Palm Oil futures in Bursa Malaysia declined from RM2,115 per metric ton in the previous week to RM2,030.

The benchmark index is well supported by the short term trend. The FBMKLCI continues to stay above the short to long term 30 to 90-day moving averages despite several pullbacks from the uptrend that started in April. A major correction is yet to be seen in this 6 months bullish trend. Momentum indicators are about to turn bullish again after mixed signals last week. The RSI and Momentum indicators are starting to move away from the middle level and the MACD indicator is about to cross above its trigger line or 9-day moving average. ADX indicator has just started to increase again, showing good strength in momentum last week.

The Bollinger Bands started to expand again with the FBMKLCI penetrating the top bands after testing the middle band two weeks ago. The same situation (the expansion) happened exactly a month ago and the FBMKLCI made new highs for the year. Therefore, we may expect the same to happen again and this time the projection is 1,280 points before it finds the next resistance. The average daily trading range is the same as the previous week. The Average True Range indicator which measures the average trading range for past one week is 8 points and is relatively low historically.

The immediate support and resistance are still 1,196 points and 1,230 points respectively. The FBMKLCI is currently testing the resistance level for the second time in a month. The market is set to test newer highs because of the strong bullish reversal and breakout. The next resistance level is between 1,280 and 1,300 points. However, if the market fails to make new highs and the FBMKLI falls below the 1,196 points support level, then the next support level it is going to test is at 1,150 points.

Looking ahead, the leading Ichimoku Cloud indicator continues to contract last week and this indicates that the support for the uptrend is getting thinner. Being a leading technical indicator, a major trend reversal is not expected until the cloud bands cross. Therefore, there is still a chance for the market maintain its uptrend at least for another month.


Daily FBMKLCI chart as at 8 October 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.