FBMKLCI possibly heading for 1,300

The equity market rebounded technically on the 30-day moving average after correcting from a high of 1270.44 points about three weeks ago to a low of 1233.45 points last week Monday. The low was exactly on the short term 30-day moving average and the FBMKLCI is currently at 1,253.96 points. The market was bullish the whole of last week with fresh news from the US economic data which shows further improvement on the US economy. The FBMCKLI increased 1% from last week and is supported by a relatively good market participation.

In America, new unemployment claims fell more than expected while the Senate approved to extend unemployment benefits by up to 20 weeks and extend homebuyer tax credit. Malaysia economy however is mixed. The World Bank appears to be more confident that Malaysia’s officials as it forecasts Malaysia economy to grow by 4.1% next year after contracting by an estimated 2.3% this year. The government’s estimation was between 2% and 3%, announced in the recent National Budget.

However, Malaysia’s exports and imports dropped on a month-on-month basis for the second consecutive month in September which led to year-on-year decline to start to expand. Malaysia’s Producer Price Index (PPI) in September declined by 9.6% from the same month last year (year-on-year). For the first nine months of this year, PPI also declined by 9.6% from the same period last year.

The US dollar pulled back after a strong rally and commodities prices start soaring again. The US dollar weakens against the Euro dollar, Japanese Yen and most other currencies. This, coupled with improving US economy encouraged price of commodities to move higher. Price of gold hits new high when it went to almost US$1,100 an ounce in COMEX and is currently at US$1091.50. Price of oil which went below US$80 in the last two weeks is slightly above US$80 again. Price of rubber in TOCOM remains the same as last week at JPY$230 while the price of crude palm oil in Bursa Malaysia broker the high of last week and is currently RM2,247 per metric ton, RM50 higher than the previous week.

The uptrend of the FBMKLCI is still well intact after being supported once again by the short term 30-day moving average. The rally last week was supported by an average daily trading volume of 1.3 million shares, an increase of 30% from the previous week’s average. The RSI and Momentum indicators which measure bulls and bears strength were at the mid level in the previous week and begin to slightly increase. The bulls are trying to push forward against the bears. However, the MACD indicator has yet to come above its average and the ADX indicator is still declining.

Despite the bullish move last week, market volatility has slightly dropped. The daily ATR indicator which measures average daily volatility fell from 10 points in the previous week to 8.3 points last week. This simply shows a steady recovery after strong downward correction in the previous week. For the past one month, the average daily volatility has been quite steady at about 10 points a day movement on the FBMKLCI. As the benchmark index trading around the short term moving average, the Bollinger Bands has started to contract since last week. The Bollinger Bands suggests that the market is in a correction and will only start to move if it breaks the top band, currently at 1,272 points or below the bottom band at 1,232 points.

The leading Ichimoku indicator continues to remain firm sideways. There is no indication that the market up trend is going to reverse in the next one month, but the FBMKLCI is starting to move towards the support area or the cloud of this indicator. The uptrend is expected to reverse when the FBMKLCI moves below this support area. The market has just rebounded and the rally is not over. The resistance level which I have been mentioning since last month is between 1,280 and 1,300 points.

There is a possibility of the FBMKLCI moving to 1,300 points especially if it breaks the Bollinger Bands resistance at 1,272 points. If the index not able to break above this immediate resistance, then further sideways move is expected. The index is expected to be supported at 1,230 points. Therefore, there is still short term buying opportunities for traders this week but do not buy if the market goes near 1,300 points.


Daily FBMKLCI chart as at 5 November 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.