Malaysia FBKLCI: Sideways with downward bias

Last week’s market performance was almost a non-event as the market was relatively quieter and lower in volatility. After two consecutive weeks of making new highs for the year, the benchmark FBMKLCI failed to make a new high last week. The index closed at 1,271 points Wednesday, 4 points lower than previous Wednesday’s close. Average daily trading range was only 5.6 points against 7.5 points in the previous week. The average daily trading volume in the past one week was 915 million shares against 1170 million shares in the previous corresponding week.

After rebounding from a downtrend, the US dollar continues to weaken again against the Malaysian Ringgit and other major currencies. The Malaysian Ringgit strengthened from 3.39 to 3.36 against the US Dollar in a week. The weakening US dollar pushes prices of commodities higher. Leading the pack is gold and there seems to be a buying frenzy in this precious metal. Price of gold creates new historical high and at US$1,170 an ounce, it could easily hit US$1,200 soon. Price of crude palm oil in the futures went as high as RM2,518 before settling at RM2,482 per metric ton. Just about a month ago, the price of crude palm oil was trading at around RM2,200. However, price of crude oil continues to trade below US$80 a barrel. There is already a concern about commodities price bubble, especially gold.

Last week, I wrote that the market may move into a correction any time soon. The correction last week was not the one that I am expecting. I am expecting a bigger one. Therefore, the correction may have just started, unless the FBMKLCI breaks above 1,280 points. The short term 30-day moving average is at 1,262 points, just 10 points below the index. The 30-day moving average has been providing good support for the FKLI for the past 6 months and therefore a break below this moving average may signal major correction in the uptrend.

Momentum indicators continue to decline. The Momentum and MACD indicators get nearer to the mid-level while the RSI indicator maintains the same level as the previous week. In the longer term, the divergence between the FBMKLCI and the momentum indicators suggests a strong resistance at the nearest high, which is 1,288 points. However, the Bollinger Bands width remained wide and firm as the index stays above the middle band, which is a 20-day moving average. This shows that despite the weaker sentiment, the market is still being supported well.

The Ichimoku Cloud indicator width maintains the same but has slightly increased in value. The cloud, which is plotted 26 trading days ahead, is currently between 1245 and 1,270 points. So, the FBMKLCI level is just above the cloud. The index is therefore expected to move sideways this week with a downward bias because of the weak momentum. If the FBMKLCI is unable to continue its trend in a month, then we may see further correction downwards.


Daily FBMKLCI chart as at 25 November 2009 using NextVIEW Advisor

The immediate support level is at 1,260 points (the 30-day moving average) and if the index falls below this level, the market is expected to move further into correction and test the next support level at 1,200 points. Technically, 1,200 points is a crucial support level and the uptrend can only be sustained if the FBMKLCI stays above this level. A major correction may take place if this crucial support level is broken. The resistance level remains at 1,300 points and like I have mentioned in my earlier commentaries, I am not expecting it to be broken this year.

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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.