FBM KLCI - bearish outlook

Stocks on Bursa Malaysia ended lower last Friday on renewed selling pressure in heavyweights and big capitalised stocks. The downtrend was due to the overnight slide on Wall Street and on European markets as US data disappointed. The cut in credit ratings of Spanish banks also spooked investors. The FBM KLCI closed 11.75 points or 0.76% lower at 1,532.46, after hovering between 1,526.6 and 1,539.24 throughout the day. Week-on-week, the key index loss 51.86 points or 3.27% from previous Friday’s close of 1,584.32. Market breadth was negative with 702 losers and 130 gainers while 256 counters were unchanged. Turnover declined to 1.06 billion shares valued at RM1.5 billion from 1.27 billion shares worth RM1.93 billion recorded on Thursday, and total weekly volume fell to 5.768 billion shares valued at RM8.262 billion from 6.033 billion shares worth RM6.45 billion.

The local bourse was basically in a bearish mood the whole of last week. The FBM KLCI opened the week 2.26 points lower at 1,582.06 and slipped lower to close 9.24 points at 1,575.08. The key index was 14.01 points lower at 1,561.07 on Tuesday in line with weaker performances in key regional markets. The FBM KLCI opened on Wednesday with a down gap of 2.82 points at 1,558.25 and slipped 25.03 points or 1.6% lower to 1,536.04. Thursday saw a technical rebound with the FBM KLCI gaining 8.17 points higher at 1,544.21. However, the FBM KLCI continued to slide lower on Friday, hitting the intra-week low of 1,526.6 before rebounding to close the week at 1,532.46.

On the weekly chart, the FBM KLCI formed a bearish long black candlestick which indicates sellers were dominant throughout the week, and the key index is likely to fall further in the coming week. On the daily chart, the FBM KLCI formed a black hammer-like candlestick which indicates sellers were dominant with mild bargain-hunting. With the bearish outlook on both the weekly and daily candlestick chart, the FBM KLCI is likely to slip further southward with a possible down side target of 1,495 to 1,491, and the immediate critical downside support zone is envisaged at 1, 520 to 1,510 provided by the cluster of long term moving averages.

Weekly MACD continued to slide lower after making the dead-cross, and the daily MACD also slipped lower, indicating an acceleration of the bearish momentum. Weekly RSI (14) plunged lower to 46.1 from 58.7, indicating the weekly relative strength has turned bearish. Daily RSI (14) pulled back to 29.1 after rebounding to 32.7, indicating the daily relative strength is back to the very bearish or short term oversold zone. As this is a re-visit of the oversold zone, the key index might fall even further as the bearish momentum pickup. Weekly stochastic continued to slide lower to 51.9 from 68.2, indicating a continuation of the weekly down cycle, and the daily stochastic has hooked up slightly reflecting the rebound after hitting the intra-week low on the FBM KLCI chart. In short, the FBM KLCI is looking very bearish from both the weekly and daily indicators. Nonetheless, as the oscillators have entered the short term oversold zone, a rebound might be expected ahead.

The trend of the FBM KLCI has turned bearish as the key index is now staying below the short, medium and the long term 120-day SMA. However, the benchmark index is still above the longer term 200, 240 and 360-day SMA, which formed a support zone at the 1,510 to 1,520 level. Some strong support is expected when the FBM KLCI approaches this support zone. However, a close below this critical support zone would spell the end of the bull trend which started in April 2009. The best strategy now is to sell on rebound until a clear trend reversal is observed.

Last Friday, the Dow fell -73.11 points or -0.59% to close at 12,369.38. This week, the FBM KLCI is likely to trade within a range of 1,489 to 1,606, and for today, it is likely to trade within a range of 1,513 to 1,552

This week's expected range: 1489 – 1606
Today’s expected range: 1513 – 1552

Resistance: 1539, 1545, 1552
Support: 1513, 1520, 1526