FBM KLCI set to test 1,800 points

Business & Markets 2013
Written by Benny Lee
Wednesday, 22 May 2013 10:33
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JUST a week ago, the FBM KLCI was at record high, pulling back for
two days before rebounding on Monday. The pullback was mild as the
index went to a low of 1,765.45 points, above the 1,750-point
immediate support level. On a week-on-week basis the KLCI was
almost unchanged in a week at 1,787.38 points yesterday after trading
between 1,765.45 and 1,793.87 points. Trading volume remained
relatively high at 2.67 billion shares traded on average daily in the past
week, showing that interest in the market is still overwhelming. Bullish
market performances globally and a strong Japanese economic
recovery provided the boost for the local market, which has strong
economic ties with Japan.
The market in the US was bullish in the past week but pulled back
Monday as investors are now a little concerned over whether the US
Federal Reserve monthly bond buying spree will come to an end since
the job market has been improving since early this year. The Fed will
release the minutes of its recent policy setting meeting today. The Dow
Jones Industrial Average increased 1.6% in a week to 15,335.28 points
on Monday after setting a record high last Friday at 15,354.40 points. In
Europe, London’s FTSE 100 index is climbing nearer to a record high as
the index rose 1.8% to 6,755.63 points. Germany’s DAX rose to
another record high after climbing 2.1% in a week to 8,455.83 points.
Markets in Asia pulled back yesterday but still ended on a positive note
on a weekly basis. Confidence in the Japanese market continued to be
strong. Hong Kong’s Hang Seng Index increased 1.9% in a week to
23,366.37 points while Japan’s Nikkei 225 index surged 4.2% to 15,381.02 points after increasing 4.1% two weeks ago.
China’s Shanghai Stock Exchange Composite Index finally rallied after staying sideways for a month. The index rose 4% in a
week to 2,305.11 points. Singapore’s Straits Times Index took a little breather by rising only 0.3% to 3,443.90 points.
The US dollar continued to strengthen and this has caused the ringgit to weaken against the greenback. The US Dollar Index
increased from 83.36 points last week to 83.84 points while the ringgit against the US dollar rose from 2.99 last week to
3.01. The price of gold continued to weaken from stronger US dollar and bullish equity markets. Commodity Exchange
(Comex) gold fell 2.6% in a week to US$1,392.80 an ounce. However, West Texas Intermediate (WTI) crude oil on the New
York Mercantile Exchange (Nymex) rebounded 2.1% to US$96.87 a barrel. Crude palm oil futures also rebounded in the past
week, increasing 1.5% to RM2,334 per tonne.
The KLCI still managed to stay above the 1,740 support level, which means that the market is dominated by the bulls. The
immediate support level is now at 1,765 points after the market rebounded from this level last Friday. The index is still way
above the short- and long-term moving averages, indicating a strong uptrend. The short-term 30-day moving average is
currently at 1,732 points while the longer-term 90-day moving average is at 1,675 points. This, however, makes the market a
little overbought, but it is always overbought in a strong bullish market.
Momentum is still bullish but the momentum indicators
are showing some signs of weakness. The RSI
indicator has not managed to climb higher than the
previous high and the MACD indicator is about to cross
below its trigger line or 9-day moving average.
However, the Bollinger bands indicator is still
expanding and the index is trading above the mid band.
The correction in the past week caused the momentum
indicator to show some weakness but this has not
shaken the bullish trend.
Equity markets, including Malaysia, will continue to
attract investors and traders and the out of favour gold
market and strong trading volume confirms this. While the market may be a little bit cautious on the developments in the US,
markets would continue to climb higher after minor pullbacks. We may expect the KLCI to test 1,800 points this week before
we see any minor pullbacks. Currently, the immediate support level is at 1,765 points.
Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa
Malaysia committed to offering the best services to a wide range of customers. He can be contacted at
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investment advice. Please exercise your own judgment or seek professional advice for your investment decisions.