KL Composite Index (FBMKLCI): Expected to move into a correction anytime soon

The market continues to make new highs last week but was not able to sustain and immediately pulled back. Resistance is getting stronger, as mentioned last week. The FBMKLCI went as high as 1,288.42 points, highest since May last year before pulling back to close at 1,276.65 points Thursday. The benchmark index still managed to close higher but only 4.9 points from the previous week. Last week, there was selling pressure whenever the market tries to push prices higher. Traders’ sentiment was a little weak as the price in the KLCI futures market closed at a 5 points discount from the underlying FBMKLCI.

The US Dollar rebounded last week against major currencies after starting on a weak note earlier this week but is still lower week-to-week. The US Dollar index (futures) in ICE NYBOT is currently at 75.545, 0.625 or 0.8% from last Monday’s close at 74.920. The Malaysian Ringgit is RM3.39 against the US Dollar, weakened by RM0.01 from last week. Price of commodities increased week-to-week despite a rebound in the US Dollar.

The price of gold continues to make new historical highs and closed 2.2% higher at US$1143.60 an ounce from the previous week. Price of crude oil futures in NYMEX however continues to trade around US$80 a barrel. Price of crude palm finally increased after moving sideways for weeks. The price rose 5.6% higher to close at RM2,371 per metric ton. TOCOM rubber futures (RSS3) also continues its upward rally by climbing 4% to close at JPY$243.50 per kg in a week. Price of rubber has risen 7.7% month-to-date.

The movement on the FBMKLCI can be considered uncertain this week as it close almost at the same level as last week, despite making new highs. Trading volume last week was almost the same as the previous corresponding week. 1.17 billion shares exchanged hands daily on average. The trading volume on Thursday was 1.385 billion shares and Maxis shares, which was re-listed account for about 22% of Thursday’s trading volume. The FBMKLCI up trend is still being supported by increasing moving averages. The nearest short term 30-day moving average is currently at 1,258 points. All short to long term 30 to 90 day moving averages are increasing.

Despite making new highs for the past two weeks, the momentum indicators like RSI and Momentum are still lower than their previous pivot high. The divergence still exists between the momentum indicators and the FBMKLCI uptrend. This simply means that the bullish rally in the past two weeks may not be strong enough to overcome the increasing resistance standing front of the bulls. The MACD indicator may have crossed above its moving average but the cross happened with a lower MACD level.

The volatility of the FBMKLCI is a little weaker last week than the previous week. The FBMKLCI traded in a 7.6 points daily trading range, calculated from the Average True Range (ATR) indicator. The previous week’s ATR was 8.5 points. This simply means that the market does not have confidence in a direction as sentiments were mixed. However, The Bollinger Bands is still expanding as the FBMKLCI managed to stay above the middle band.

The leading Ichimoku Cloud indicator has increased a little but the width of the cloud remains the same. The support from this indicator is between 1,240 and 1265 points. There is still no sign of any trend reversal in the next one month, based on this indicator reading. The possibility of the FBMKLCI to climb to 1,300 points is getting thinner. I have mentioned before that the index may test this level but may not be able to break above it this year.


Daily FBMKLCI chart as at 19 November 2009 using NextVIEW Advisor

With the current level and momentum, the FKLI is expected to move into a correction anytime soon, especially if the 1,258 points immediate support level breaks. The next technical support level will be at 1,200 points. The uptrend is expected to continue with a lower momentum if it can stay above the immediate support level.

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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.