Stocks on Bursa Malaysia went through a consecutive five days of down slide on the last week of January 2010 in tandem with weakness on regional bourses, which was due to China's monetary policy tightening coupled with the proposal by the Obama administration to limit risk-taking by banks in the United States. Locally, Bank Negara Malaysia kept the overnight policy rate at two per cent but hints of a possible review to avoid financial imbalances, had affected the banking stocks heavily.
The FBM KLCI ended January on a weak note, shedding 41.29 points to 1259.16 from the previous week’s close of 1300.45. It formed a bearish long black candlestick on the weekly chart which pierced right through the 10-week moving average (MA) which has all this while given support to the uptrend since April 2009; hence, further weakness is expected on the benchmark index for the short term.
The FBM KLCI is resting right on the 20-week MA (a 100-day MA equivalent) and may find some support around it. If the current support level at 1250 does not hold, then the index may visit the next lower support provided by the 30-week MA at 1228.
Weekly MACD has widened downward, indicating possible further weakness ahead. Weekly RSI made a sharp dropped to 58.9 from 74 the previous week, indicating the weakening of market strength, and entering to the neutral zone. The weekly Stochastic at 72.8 has crossed below the 80 mark, indicating possible further downward slide.
From the weekly chart perspective, the FBM KLCI has started its correction and may continue to further consolidate for the short term. The longer term trend as indicated by the long term MA is still up and unspoiled. In fact, one should view the current correction as an opportunity to accumulate quality stocks at lower level. The medium to longer term target for the FBM KLCI of 1350 to 1400 is still intact.
On the daily chart, the index formed a white hammer-like candlestick on last Friday, which indicates a temporary bottom and possible reversal. It may stage a technical rebound, however, it will face strong overhead resistance at the 1275 to 1282 zone.
Daily technical indicators are reflecting the weakness of the FBM KLCI. However, it is worth while to point out that the Stochastic at 8.3 has entered the short term oversold zone. As can be seen from the past, a successful rebound from here has brought the index to a higher level.
For this week, the FBM KLCI is likely to trade within a range of 1225 to 1287. As for today, it may trade within a range of 1248 to 1268.
This week's expected range: 1225 – 1287
Today’s expected range: 1248 – 1268
Resistance: 1262, 1265, 1268
Support: 1248, 1250, 1255
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