Malaysian equity market still bullish but may struggle to move higher this week

After making a new high since June last year at 1,270.44 points, the FBMKLCI pulled back to close at 1260.02 points on Thursday with a relatively lower volume. The benchmark index still managed to close positively from last week with a modest gain of 13.16 points or 1%. There were profit taking activities in the past two days but the pressure was not high to cause the market to decline substantially. The KLCI traded between 1,247.18 and 1270.44 points in the past five days. There were not much news or financial data released last week and all eyes and ears are focused towards the national budget on Friday.

The average daily trading volume was 1130 million shares but volume declined sharply in the past two days with a daily average of 887 million shares. Investors were staying out to wait and see the outcome of the national budget which is expected to be broad-based. Prices of commodities keep soaring as the US dollar plunges further. This worries investors because high commodities prices may dampen economic growth. Regional market performances are mixed and are starting to feel stronger resistance.

The US Dollar is still weakening against major currencies. The Euro dollar is now EUR$1.50 to a US dollar. It has increased 3.4% in less than a month. However, it has strengthened against the Malaysian Ringgit last week. The weak US dollar has pressured commodities prices to climb higher. Gold continues to stay at US$1,060 an ounce while crude oil has gone above US$80 a barrel. Prices of rubber futures in TOCOM and crude palm oil futures in Bursa Malaysia have also risen to JPY225.00 a kg and RM2,210 per metric ton respectively.

The market continues to stay in an uptrend. The FBMKLCI is still being supported strongly by the short and long term uptrend. The rally in October is stronger than the rally in August. The momentum indicators are showing stronger bullish momentum in this rally. The RSI and Momentum indicators pivot highs are higher than the previous pivot highs. The MACD indicator continues to stay above its moving average. There is still little room for the market to move higher because the resistance level is at the range between 1,280 and 1,300 points.

The market volatility remains the same as last week with the Average True Range (ATR) indicator indicating an 8.5 points daily range. The index is still hovering at the top band of the expanding Bollinger Bands which also measures volatility in the intermediate term. This also means that the distribution of price in the past one week is on the high side. This confirms the momentum indicators which indicated strong bullish strength.


Daily FBMKLCI chart as at 22 October 2009 using NextVIEW Advisor

The market has almost fully recovered from the 2008 bear trend and there is still no major correction since the rebound in March this year. It took nearly more than three years (2004 – 2007) for the FBMKLCI to climb from 800 points to 1,260 points and less than a year for it climb the same this year. We have been waiting for at least a major correction to happen but the market is just bulldozing through resistance levels. Analysts, fundamentalists and chartists alike, including yours truly have been revising the resistance levels higher a few times this year. Can the resistance be broken again this time?

Chances of the index testing this level are high but there is low chance that it will stay above it and rally further without a proper correction. The resistance level I talked about since last month is 1,280 to 1,300 points. The market is not expected to immediately turn bearish either, because the leading indicator, the Ichimoku Cloud is still widening and market is supported well. The market may struggle to move higher this week. The immediate support level is 1,220 and if this level is broken, then the market may move lower for correction with the next support level at 1,160 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.