Bursa Malaysia FBMKLCI: Resistance getting stronger

The FBMKLCI managed to inch up higher last week but still short of the 1,300 points expected target. Last week, the benchmark index went as high as 1,279.52 points and closed at 1271.75 points Thursday. One a week-to-week basis, the index rose 17.79 points or 1.4%, slightly higher than the increase in the previous week. On Thursday, there is evidence of support when the market rebounded in the last two hours of trade to cover its strong losses in the morning. The FBMKLCI went to a low of 1,262.48 points before it rebounded 9 points.

The FBMKLCI continued its uptrend journey by breaking above the 1,272 points immediate resistance level from the Bollinger Bands indicator last week. A new pivot high is created and this simply means that the uptrend is still developing. The index is well above the short to long term 30 to 90 day moving averages. The upward rally last week was supported by a relatively lower volume of 1.16 billion shares on a daily average. The average for the previous corresponding week was 1.3 billion.

There is a strong divergence between the current uptrend on the FBMKLCI and the momentum indicators. While the FBMKLCI is making new highs, the RSI, MACD and Momentum indicators are not. These indicators are indicating that the uptrend has weakened as the resistance gets stronger. At current level, the market provides a good opportunity for profit taking for those who have got into the market earlier.

The FBMKLCI has been trading around an 8.5 points range a day, as indicated by the 5-period Average True Range (ATR) indicator. The market volatility is almost the same as the previous week. When the index moved towards the top band of the Bollinger Bands as I have mentioned in my first paragraph, the bands starts to expand slightly. For the many times the FBMKLCI broke the top band in the past few months, the market rallied, provided that the FBMKLCI keeps testing the top band. Therefore, next week will be a crucial test that if the index is not move along to top band, the resistance is clearly strong.


Daily FBMKLCI chart as at 12 November 2009 using NextVIEW Advisor

There is still a possibility for the FBMKLCI to climb to 1,300 points, provided that it stays above the immediate support level of 1,230 points. However, it may not happen this year as it needs a proper correction to remove the resistance ahead. The leading Ichimoku Cloud indicator starts to expand but at between 1,220 to 1,260 points, still below 1,300 points. Therefore, the FBMKLCI is expected to just trade slightly above this range in the next one month. If the 1,230 points support level is broken, the FBMKLCI may find support at 1,200 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.