Stocks on Bursa Malaysia gone through a week of serious correction with the benchmark FBM KLCI fell six days consecutively since two Fridays ago. Growing concerns over the Euro zone debt crisis and the possibility it may cause a contagion effect which may affect the global economic recovery, and a weaker report on the US labor market, on top of the continued tightening in monetary policy to curb property speculations by the Chinese government continued to haunt the global equity market.
After holding in the sideways range of1324 to 1349 for six weeks, the FBM KLCI eventually succumbed to the selling pressure last week and made a largest single week drop of 53.57 points since the bull-run started in April 2009. Week-on-week, the benchmark FBM KLCI fell 53.57 points to 1,285.73 from 1,339.3 the previous Friday. Weekly turnover declined slightly to 3.757 billion shares worth RM6.735 billion from 3.842 billion shares worth RM5.712 billion the previous week.
On the weekly chart, the FBM KLCI formed a bearish long black candlestick which indicates intense selling pressure. It broke the 1300 psychological support level by forming a large down gap on the daily chart last Friday. It is now resting on the 30-week moving average (MA) which had given the key index a strong rebound on the week of February 12, the 30-week MA is now at 1290.
The FBM KLCI is now at a critical support zone of 1280 to 1290, which happen to be the 50% Fibonacci retracement level of 1287 for the recent run up from February 9 till May 4, 2010 when the index hit the recent peak of 1349. If the key index could not rebound to stay above the critical psychological support level of 1300, then it might continue its downtrend to test the next 61.8% Fibonacci retracement level at 1272.
Weekly MACD continued to slide southward, indicating a pickup in downward momentum; nonetheless, it is still above its weekly zero-line, hence, the weakness could be just a short term correction. On the daily chart, the daily MACD has however, cross below its zero-line, indicating a deep correction is in action. Weekly RSI(14) at 49.68 has crossed below its 50 level, and move into the bearish zone. Daily RSI(14) at 24.95 has moved into the very bearish or oversold zone, a rebound may happen anytime. Weekly Stochastic at 73.39 has crossed below its slow stochastic line, and is below the 80 level, indicating a medium term down cycle for the benchmark index has begun. The daily Stochastic at 6.4 is in the oversold or very weak zone. Signals from the indicators point towards more weaknesses to come for the FBM KLCI.
For the short term, the FBM KLCI has turned downtrend. The longer term trend as indicated by the 200-day MA is still up. The 200-day MA at 1266 level is now the critical long term support for the key index, if the key index were to close below this long term MA support, then the market is considered to have turned bearish from the longer term perspective.
In view of a lack of fresh leads locally and the few uncertainties that continue to affect investors’ sentiments, the local market is expected to continue to track the direction of regional market, and may continue to correct and consolidate in this week.
As the Dow rebounded 125.38 points or 1.25% to close at 10,193.39 last Friday, this may help to stabilize the local market a little. This week, the FBM KLCI may trade within a range of 1230 to 1322, and for today it is likely to trade within a range of 1271 to 1300.
This week's expected range: 1230 – 1322
Today’s expected range: 1271 – 1300
Resistance: 1291, 1296, 1300
Support: 1271, 1376, 1281
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