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Monday, October 18, 2010

FBM KLCI - expect more correction and consolidation ahead

Stocks on Bursa Malaysia ended broadly lower last Friday on profit-taking ahead of the 2011 Budget announcement. The market started the day on a negative note as investors trimmed their positions amid a weaker overnight close on Wall Street. The Budget, however, did not bring much of surprise goodies to the market, and the benchmark index has indeed discounted whatever positive news from the budget as it had a good run up before the budget announcement. The benchmark FBM KLCI ended last week with a gain of 8.45 points or 0.57%, week-on-week, to 1489.86, from 1481.41 the previous Friday. Weekly volume increased to 5.76 billion shares valued at RM9.33 billion compared with 5.23 billion shares worth RM8.05 billion last week.

The FBM KLCI opened last week with an up gap of 4.73 points at 1486.14, taking cue from the positive closing on Wall Street with the Dow closing above the 11,000 mark on speculation the latest data would push the Federal Reserve to launch another round of economic stimulus, and the key index closed 6 points higher at 1487.41 on Monday.

On Tuesday, the FBM KLCI opened higher with an up gap of 2.88 points at 1490.20, and surged to the intra-day high of 1493.29, however, profit-taking activities pressed it lower to close 0.84 of a point lower at 1486.57.

With the positive close on Wall Street overnight, coupled with steadier key regional markets spurred buying interest in the local market, led by gains in plantation-related stocks amid higher crude palm oil (CPO) prices, the benchmark FBM KLCI rose 10.40 points to close Wednesday at 1496.97.

The key index extended its upward momentum on Thursday, hitting a new 33-month high of 1503.82 in early trade, encouraged by gains in overseas bourses before reversing downward owing to strong profit-taking activities to close 0.59 point lower to 1496.38 on Thursday. Continuing the profit-taking activities ahead of the Budget announcement, coupled with the generally weak overseas market, the FBM KLCI loss 6.52 points or 0.44% to close Friday at 1489.86.

On the weekly chart, the FBM KLCI formed a shooting-star candlestick which is a top reversal candle pattern. It indicates heavy selling activities which pressed the key index off high after touching the year high of 1503.82. On the daily chart, the key index formed a black candlestick which is a confirmation to the bearish dark-cloud-cover or hanging-man like candlestick formed on Thursday. With the bearish signals on both the weekly and daily chart, the key index is expected to further corrects downward or consolidate in the coming week. Immediate downside supports for the Key index are found at 1483, 1474 and 1465 provided by the 10, 20 and 30-day moving average (MA), while immediate overhead resistance zone remained at 1500 to 1524. The key index is expected to re-test the 1500 zone level after the correction.

Weekly MACD continued to move higher, albeit its weekly histogram has turned shorter, indicates the medium to longer term upward is still positive. Daily MACD, however, has turned downward, after briefly crossing its signal-line, indicating the short term momentum has again turned southward and the key index will goes into a short term correction or consolidation mode.

Weekly RSI (14) continued to move higher and is currently at 78.3, indicates a very bullish state of the medium term strength, albeit is in the overbought zone. Daily RSI (14) at 68 has moved lower into the bullish zone from the short term overbought or very bullish zone, reflecting the current correction of the key index, nonetheless, the key index is still bullish.

Weekly Stochastic continued to move higher, is currently at 94.5, and is above its weekly slow Stochastic, indicates a very strong medium term market momentum. Daily Stochastic at 85.2, however, has crossed below its slow stochastic and continued to move lower, reflecting the current correction of the key index.

Signals from the indicators are indicating that the medium to longer term technical conditions of the FBM KLCI is still bullish, whilst the short term is likely to go into a correction or consolidation. Having said so, the underlying medium to longer term trend of the FBM KLCI is still positive and remained in the uptrend direction. The short term uptrend may be challenged, as the key index is currently closing below the 5-day MA and may continue to move lower to test the support by the 10, 20 and 30-day MA. The key index is expected to re-challenge the 1500 level when the correction is over.

The overall market is expected to remain in a rotational play mode, with those companies that benefit from the budget continue to shine, whilst the key index takes a breather after a long up move for almost three months.

The Dow fell -31.79 points or -0.29% lower to close at 11,062.78 on last Friday. This week, the FBM KLCI may trade within a range of 1461 to 1524, and for today it is likely to trade within a range of 1476 to 1503.
This week's expected range: 1461 – 1524
Today’s expected range: 1476 – 1503

Resistance: 1494, 1499, 1503
Support: 1476, 1481, 1485

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