Millionaire Trend Trader: FBM KLCI - likely to pullback on profit-taking corrections

Monday, June 4, 2012

FBM KLCI - likely to pullback on profit-taking corrections

Stocks on Bursa Malaysia ended lower last Friday, in line with the weaker regional investor sentiment on concern over Europe and the soft economic data from the US. Losses in plantation and banking stocks pushed the FBM KLCI to close 7.08 points, or 0.45%, lower at 1,573.59, and week-on-week, the benchmark index added 22.47 points or 1.45% from previous Friday’s close of 1,551.12. Losers led gainers by 363 to 303 while 310 counters were unchanged. Daily turnover rose to 654.35 million shares worth RM1 billion from 1.24 billion shares worth RM1 billion on Thursday. Weekly volume fell to 4.3 billion shares, valued at RM7.03 billion, from previous week’s 4.35 billion shares, worth RM6.14 billion.

The FBM KLCI was basically in an uptrend last week with four days of gains and only one day of losses. It opened on last Monday with a down gap of 5.7 points at 1,545.42 and slipped to the intra-week low of 1,544.63, it then rebounded and moved higher to close in the positive territory with a 3.82 points gain at 1,554.94. On Tuesday, The FBM KLCI opened 0.94 point lower at 1,554.00 and slipped to the intra-day low of 1,552.34 before rebounding to close 10.38 points, or 0.67%, higher at 1,565.32. Taking cue from the strong performance of the Dow overnight, the FBM KLCI opened Wednesday with an up gap of 2.89 points at 1,568.21 and ended the day higher with 9.85 points or 0.63% gains at 1,575.17. On Thursday, the FBM KLCI took cue from the weak performance of Wall Street overnight to open 3.39 points lower at 1,571.18 and slipped to the intra-day low of 1,569.99, losing 5.18 points at its worst before rebounding to close 5.5 points higher at 1,580.67, and Friday saw a pulled back of the FBM KLCI to close 7.08 points lower at 1,573.59.

On the weekly chart, the FBM KLCI formed a bullish white candlestick with a short upper shadow which indicates the bulls were very much in control for last week. It recovered most of the losses suffered two weeks ago and tested the intra-week high of 1,582.03, and it might continue its upward move this week with overhead resistance zone at 1,582 to 1,609. On the daily chart, the FBM KLCI formed a Doji candlestick in Harami position which indicates uncertainty in the market direction after four days of consecutive up move. The appearance of a Doji in Harami position after an uptrend may forewarn of an impending reversal and the key index may further pullback to correct itself.

Weekly MACD continued sliding lower; however, its histogram was shorter upward, indicating a slight reduction in the weekly downward momentum. Daily MACD continued to climb higher but the histogram was just marginally higher, indicating a reduction in the upward momentum. Weekly RSI (14) was higher at 54.8 compared with 50.2 previously, indicating the weekly relative strength was back to the mildly bullish zone. However, daily RSI (14) pulled back to 53.5 from 57.5, reflecting the pulled back in the key index, and the daily short term relative strength is still in the mildly bullish zone. Weekly Stochastic was flat at 31.1, indicating a pause in the weekly down cycle, but not yet enough to indicate a reversal. However, the daily Stochastic was higher at 84.8, entering the short term overbought zone and a pullback correction is likely ahead. Readings from the weekly indicators showed that the FBM KLCI is still in a correction mode from the weekly perspective, while signals from the daily indicators showed a short term mildly bullish mode, but signs are surfacing that the upward momentum is waning and a pullback is likely.

The short term trend of the FBM KLCI has turned up as it is now closing above the short term moving averages, while the medium term trend is still sideways with a downward bias as the two medium terms 50 and 60-day SMA remained flat and the key index is closing below them. The long term uptrend is still intact but may be subjected to challenge soon. With the overbought signal on the daily Stochastics caused by local fund support of the blue-chips despite weak buying support on the broader market, blue-chip stocks are likely to suffer from profit-taking corrections this week. The divergence of the FBM KLCI against global markets which are much weaker last week, and the more than two percentages tumble on US stocks last Friday triggered by weaker jobs data and worsening European debt crisis would further dampen local sentiment on contagion fears.

Last Friday, the Dow fell -274.88 points or -2.22% to close at 12,118.57. This week, the FBM KLCI is likely to trade within a range of 1,514 to 1,620, and for today, it is likely to trade within a range of 1,565 to 1,583

This week's expected range: 1514 – 1620
Today’s expected range: 1565 – 1583

Resistance: 1577, 1580, 1583
Support: 1565, 1568, 1570

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Monday, June 4, 2012

FBM KLCI - likely to pullback on profit-taking corrections

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