Kuala Lumpur Composite Index: Expect a slightly bullish start with improved volume

Last week was slightly bullish with lower trading volume despite being the last week of the year 2009. The FBMKLCI rose for three consecutive days since the previous week but failed to close higher on Thursday. On week-to-week basis, the FBMKLCI still managed to close about 10 points higher from 1260.53 points to 1,271.12 points. The index went as high as 1,275.29 points. Average daily trading volume for last week was 566 million shares, slightly lower than the previous corresponding week. Other markets were directionless except for Singapore, which bucks the trend and continues to make new highs last week.

The lower volume clearly shows that investors were still on a holiday mood. Lack of positive news discouraged investors from trading last week. The talk of the week was in the airlines industry. After Japan Airlines share price fell 24% to a record low because of fear that the company may go bankrupt and the failed attempt to attack a US carrier caused local airlines to decline on Thursday. Malaysian Airlines System shares shed 9 sen to 3% to RM2.91 and Airasia fell 3 sen or 2.2% to RM1.35.

There was no strong positive news on the Malaysian economy except that the Consumer Price Index (CPI) which measures inflation rose 0.3% month-on-month but declined 0.1% year-on-year. Economic indicators were mixed in the US. Consumer confidence index rose to the highest level in three months in December but new home sales in November not only unexpectedly fell but registered the biggest drop since April this year. Jobless claims fell more than expected. Initial unemployment claims for the week ended 19 December stood at 452,000, which is better than estimates at 470,000

The Malaysian Ringgit against the US dollar remains firm at 3.42. The US dollar was strengthening against major currencies for the past few weeks. Prices of commodities were slightly bullish as the US dollar rally halted. Price of COMEX gold futures remains unchanged week-on-week despite a rebound to US$1,100 an ounce earlier but settled at US$1,090 Thursday. Price of crude oil futures in NYMEX increased from around US$76.00 a barrel to US$79.50 in a week. Closer to home, crude palm oil futures in Bursa Malaysia climbed about RM100 per metric ton to RM2,595 week-on-week.

The FBMKLCI managed to close above the short term 30-day moving average. The index has been criss-crossing above and below this average for the past one month. The moving average has been flat and this shows correction in the short term. However, the mid to long term trend is still up as the 60 and 90-day moving averages are still increasing and the index is above these averages levels.

Momentum indicators are showing slight increase in bullish momentum. The RSI and Momentum indicators are making new short term pivot highs and lows and the MACD has recently crossed above its moving average after being below it since late November. There were no changes in market volatility. Average daily trading range remains at 6 points and the Bollinger Bands slightly increased. The market was quiet and directionless for the past one month.

The leading indicator, the Ichimoku Cloud indicator continues to contract and stay between 1,260 and 1,265 points despite the slight bullish effort last week. Based on this indicator, we may not see a reversal until the next one month, that if the Cloud bottom and top lines start to cross.

Market sentiment was weak mainly because there were no strong positive catalyst in the market and the year end holiday season. The good news is that there no presence of selling pressure. I mentioned some time ago that the institutional investors are not able to sell until a significant volume is created by retail investors and most of them brought their open positions forward to the new year. Technical indicators seem to be showing good up trend support, but a reversal is expected some time next month.

With this, I’d expect the market to be slightly bullish in the first week of the new year and with improved volume. The market seems like trying to welcome retail investors who have been very cautious in year 2009. The FBMKLCI may test 1,300 points again but may find difficulty in staying above it. Immediate support level is at 1,230 points. Therefore, be smart in investing and trading in the new year and being smart means having the right knowledge and a trading plan.

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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.