Malaysia FBMKLCI: Market is supported well

The Malaysian equity market extended its rally last week with the benchmark FBMKLCI climbing 16.77 points or 1.36% from last week to settle at 1,246.86 points Thursday. The index has increased 3.26% in a month. The market found resistance on Thursday when the FBMKLCI fell 10 points from the intraday high of 1,256.59 to close at the current level. Market is supported well by FBMCKLI component stocks ahead of the tabling of the national budget end of this week, improving economic indicators and also strengthening of the Malaysian Ringgit.

Market participation has increased significantly last week especially in the last few days of the week. Average daily trading volume has increased 1,063 million shares from 750 million shares the previous week. The surge in market participation was due to positive economic reports and rise in regional markets. The Dow Jones Industrial Average has increased 2.8% in a week. Japan Nikkei 225 index and London’s FTSE increased 4.1% and 1.3% respectively.

Malaysia Institute of Economic Research (MIER) has upgraded forecast on Malaysia economic performance for this and next year following improving macroeconomic indicators, better consumer sentiment (CSI) and business confidence (BCI) indices as well as improving sectoral indices. Malaysia GDP (gross domestic product) for this year is revised to a contraction of 3.3% from a contraction of 4.2% earlier. While for 2010, Malaysia GDP is expected to grow by 3.7%, higher than the 2.8% forecast earlier. Furthermore, the International Monetary Fund (IMF) earlier this month anticipated the global economy to expand by 3.1% in 2010 from a 1.1% contraction in 2009

The US Dollar is still weakening against major currencies and caused US-dollar dominated commodities to continue to increase. Crude oil in the futures market has surged to US$78 a barrel from US$70 a week ago. Price of gold went as high as US$1,070 an ounce before settling at US$1,050. Japanese Yen-dominated rubber prices in TOCOM remained the same as the following week at JPY$215 a kg. Locally, the price of crude palm oil also increased from RM2,030 per metric ton to RM2,110 although the Malaysian ringgit is strengthening. This is because demand for palm oil in Europe, China and India remains strong. The price of this commodity went as high as RM2,196 last week.

The equity market continued to be supported even in the short term. The FBMKLCI continues to stay above the short to long term 30 to 90 day moving averages. The market was last supported by the short term 30-day moving average about a month ago. The uptrend is supported by a good bullish momentum. The RSI, Momentum and MACD indicators are still increasing since the rally a month ago. In the longer term, these indicators are also indicating a good bullish momentum as these indicators are making new pivot highs. Therefore, there is a high chance that this upward rally is going to continue.

Market volatility remained firm with the FBMKLI traded in an 8.4 points range on a daily basis, based on the Average True Range (ATR) indicator. The volatility was almost the same as the previous week’s daily average range. The distribution of price however is on the upside as FBMKLCI continues to stay at the top band of the expanding Bollinger Bands. This confirms the bullish momentum. The mid band of the Bollinger bands, acts as the average or equilibrium between the bulls and the bears is currently at 1,222 points.

The market made new highs as expected and the immediate support level is revised to 1,200 points when the 1,230 immediate resistance level is broken. The immediate resistance level is now at 1,260 points and a stronger resistance level is between 1,280 and 1,300 points. With the current momentum, there is a high chance FBMCKLI climbing to this stronger resistance range. However, if the market fails to make new highs and the FBMKLI falls below the 1,200 points support level, then the market may move further into correction to the next support level at 1,150 points.

The leading Ichimoku Cloud indicator started to expand a little bit after contracting for about two weeks. This shows that the market still has good support and can be supported well in the near future with the current momentum. Therefore, the equity market may continue to move upwards at least in the next one month or being maintained above the short term support level.


Daily FBMKLCI chart as at 15 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.