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Wednesday, October 13, 2010

FBM KLCI - a healthy profit-taking correction

Stocks on Bursa Malaysia ended lower yesterday in line with a weaker regional markets. The local market started the day in positive territory boosted by strong buying in plantation-related stocks following a surge in crude palm oil (CPO) prices on Monday. However, weaker performance in key regional markets led investors to trim their position. The FBM KLCI closed 0.84 of a point or 0.06% lower at 1486.57 after opening 2.88 points higher at 1490.29. Losers led gainers by 420 to 327 while 306 counters were unchanged. Volume rose to 1.17 billion shares worth RM1.90 billion from 1.09 billion shares valued at RM1.72 billion on Monday.

The FBM KLCI opened higher with an up gap of 2.88 points at 1490.20, and surged to the intra-day high which is also the current year high at 1493.29 within the first fifteen minutes. Thereafter, heavy profit-taking activities set in and sent the key index to its intra-day low of 1484.30, and the index was bouncing between the high and low till closing. Chart-wise, the key index formed a bearish dark-cloud-cover candlestick pattern which indicates active profit-taking activities at the current index level. As mentioned before, the 1490 to 1500 points level is a strong resistance zone which will attract heavy selling activities by the investors and is not easy to break through.

MACD turned downward slightly after climbing for the past five days, and is still below its signal-line, indicates the upward momentum is still weak. Hence, the key index may consolidate to move sideways. RSI (14) at 71.3 has hooked down, nonetheless, is still in the bullish zone, and Stochastic at 90.5 too has tuned downward from 93.7, reflecting the correction of the key index. Signals from the indicators are indicating weak momentum of the FBM KLCI and is short term overbought, hence, it is likely to further correct downward.

The underlying uptrend of the FBM KLCI is currently still intact as indicated by the short, medium and long term moving averages that are well separated. Immediate overhead resistance zone for the key index is now at 1490 to 1500 while its immediate downside support zone is at 1483 to 1474 provided by the short term 5 and 10-day moving average. Having said so, the undertone of the key index is still bullish for the time being, and any corrections should be viewed as an opportunity to collect quality shares at lower price level.

Overnight, the Dow rose +10.06 points or +0.09% higher to close at 11,020.40. Today, the FBM KLCI is likely to trade within a range of 1473 to 1502.

This week's expected range: 1445 – 1520
Today’s expected range: 1473 – 1502

Resistance: 1492, 1497, 1502
Support: 1473, 1479, 1482

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