FBM KLCI - surfacing of bearish signals

Stocks on Bursa Malaysia closed lower last Friday on continuing pessimism on regional markets plagued by renewed concerns over the Eurozone debt crisis and weak US economic data. The FBM KLCI lost 4.77 points or 0.3% to 1,591.85 after opening 0.22 point higher at 1,596.84. On a Friday-to-Friday basis, the benchmark index lost 11.27 points from previous Friday’s 1,603.12. Losers outpaced gainers by 364 to 317 while 361 counters were flat. Turnover was lower at 1.631 billion shares worth RM1.475 billion from the 1.708 billion shares worth RM1.555 billion on Thursday. Total weekly volume increased to 8.602 billion shares valued at RM7.534 billion from 4.638 billion shares, valued at RM5.913 billion the previous week.

The FBM KLCI was basically in a corrective mode last week; it opened 0.7 point lower at the intra-week high of 1,602.42 and continued to slide lower to close 5.61 points lower at 1,597.51 on Monday, in line with its regional peers as a surge in Spanish government bond yields and the slower growth of the Chinese economy renewed concerns across the markets. The FBM KLCI continued to stay in red on Tuesday to end 1.32 points lower at 1,596.19, weighed down by the Eurozone debt crisis that has struck global risk appetite, sending most equity markets weaker. The benchmark index rebounded on Wednesday in tandem with the rally in regional markets prompted by positive US corporate earnings and encouraging Spanish debt sales to end 2.67 points better at 1,598.86. The FBM KLCI continued to stay weak on Thursday to end 2.24 points easier at 1,596.62, but on Friday it lost 4.77 points to close the week at 1,591.85, the lowest point of the week.

On the weekly chart, the FBM KLCI formed a bearish black Marubozu candlestick which indicates selling pressure was dominant throughout the week as the key index opened at the highest point and closed at the lowest point of the week. With this bearish down move, the FBM KLCI is likely to slide lower in the coming week. Immediate downside support is at 1,582-point level provided by the 10-week SMA, and a break below this support level is likely to see the key index sliding lower to the next support level at 1,570. On the daily chart, the FBM KLCI also formed a bearish black Marubozu candlestick which indicates sellers were dominant for the day, and the key index has also closed below the 20-day SMA. With this bearish down move, the FBM KLCI is likely to slide lower to test the next lower support level at 1,588 provided by the 30-day SMA.

Weekly MACD has hooked downward slightly while the histogram continued to turn shorter, indicating a continued loss in the weekly momentum. Nevertheless, the weekly MACD line is still above its signal-line and is in the positive zone. Daily MACD and its histogram continued to slide lower, indicating a continued loss in the daily momentum, reflecting the corrective mode of the FBM KLCI. Weekly RSI (14) has hooked downward to 63.4 from 67.4 the previous week, indicating a loss in the weekly relative strength. Daily RSI (14), however, continued to slide lower to 51.9, and is approaching the neutral line. Weekly Stochastic has also hooked downward to 88.9 and has crossed below its slow stochastic line, indicating a possible beginning of a bear cycle. Daily Stochastic continued to slide lower to 43.7, indicating the daily short term cycle has turned bearish. Readings from the weekly and daily indicators showed that the FBM KLCI is beginning to show signs of bearishness and the bear cycle may have just begun.

The short term trend of the FBM KLCI has started to turn bearish as the key index has closed below the short term 5, 10 and 20-day SMAs. However, it is still above the 30-day SMA, which is a critical short term support trend line for the FBM KLCI. A break below the 30-day SMA, which is now at 1,588, is likely to trigger selling pressure which will likely push the benchmark index lower to the 50-day SMA support at 1,579, which coincides with the lower channel support at 1,580-point level, and a close below the 1,579 level will spell the end of the current uptrend which started on 26th September 2011. With all the technical indicators flashing bearish signals, investors can expect further downward correction for the FBM KLCI this week.

Last Friday, the Dow rose +65.16 points or +0.50% to close at 13,029.26. This week, the FBM KLCI is likely to trade within a range of 1,577 to 1,613, and for today, it is likely to trade within a range of 1,585 to 1,602.

This week's expected range: 1577 – 1613
Today’s expected range: 1585 – 1602

Resistance: 1595, 1599, 1602
Support: 1585, 1588, 1590