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Most investors and traders took a break in the last week of the year 2010 resulting low trading volume and lack of direction. The FBMKLCI managed to climb 7.43 points in a week to close at 1,518.91 points Thursday after trading between 1,509.55 and 1,529.95 points. Trading volume has dropped significantly with only 940 million shares traded on a daily average as compared to 1,300 million shares two weeks ago. Since last month, I have mentioned that the market is expected to stay sideways if the FBMKLCI stays between the trading range between 1,470 and 1,530 points and last week, the index continues to stay within this range.

The lack of direction was in tandem with global markets. The Dow Jones Industrial Average only increased 9.2 points to 11,569.71 points and France’s CAC40 index declined 59.4 points to 3,850.76 points. The Japan Nikkei 225 index fell 117.6 points to 10,228.92 points while the Hong Kong Hang Seng Index rose 132 points to 23,035.45 points. However, Singapore and Jakarta was bullish last week. The Singapore STI index rose 46.24 points to 3190.04 points while Jakarta Stock Index increased 82.8 points to 3,703.52 points. Like Malaysia, most of the market has been trading in a sideway range in the past two months.

There was no significant catalyst to lure the market to trade in the last week of the year. The bullishness in prices of commodities, which benefited plantation PLCs has supported the slight bullish market. Malaysia’s biggest plantation commodity, the crude palm oil, continues to enjoy a bullish market. Price of crude palm oil in Bursa Malaysia continues to make new highs and on Thursday, the price settled at RM3,788, the highest level since March 2008. Price of gold in COMEX manages to climb above US$1,400 an ounce at US$1409.30, after staying below this level for three weeks. However, price of crude oil in NYMEX went below the US$90 mark by closing at US$89.61 a barrel. Two weeks ago, price of rubber in TOCOM broke above the JPY$400 a kg mark and is currently at JPY$414. The Malaysian Ringgit continues to strengthen against the US dollar and is now quoted at RM3.075 against a Dollar as compared to RM3.110.

Technically, the FBMKLCI is still in a sideway move but at a slightly bullish sentiment last week. The index is above the short term 30-day moving average and there is a slight increase in the short term average. The mid and long term 60 and 90 day moving averages continue to climb higher but the FBMKLCI is now getting closer to these averages. The 30, 60 and 90-day moving averages is at 1,404, 1,500 and 1,481 points respectively. The Ichimoku Cloud which reversed to a bearish mode two weeks ago has now turned bullish but because the cloud is very thin, the trend is vulnerable to changes. The ADX indicator which has started to increase last week indicates a developing bullish strength.

Momentum indicators still indicate a bearish divergence in the long term but in the short term, these indicators indicate a growing bullish strength. The Relative Strength Index (RSI) and Momentum Oscillator indicators show no improvements since the last week but the MACD indicator has crossed above its trigger line. Market volatility remains firm as indicated by the Bollinger Bands, but the direction has started to become bullish. The Bollinger Bands difference has been slowly declining since mid-November and the FBMKLCI is trading near the top band for the past three weeks.

From the prices of commodities, overall good economic performance and a correction in equity markets without selling pressure indicate that the market sentiment is still bullish. The technical indicators also indicate bullish sentiment as the indicators have started to show that the bullish momentum is developing to become stronger. With that, I expect the equity market to start the new year on a bullish note. There is a high chance for the FBMKLCI to break above the 1,530 resistance level in the first weeks of the new year, and if this happens, the index may move to 1,580 points in the short term. Support level remains at 1,470 points. With that, I wish everyone a better and happy new year 2011 and may the market provide better opportunities.


Daily KLCI chart as at 30 December 2010 using NextVIEW Advisor Professional

The market rebounded from losses two weeks ago but the market barometer, the FBMKLCI is still within the sideway market trading range between 1,470 and 1,530 points. The index traded between 1,493.22 and 1,518.80 points before settling at 1,514.48 points Thursday, 1.1% higher than the previous week. Trading volume last week remains firm as compared to the previous two weeks. A total of 1.3 billion shares exchanged hands daily on average last week.

The Malaysian equity market has been uncertain in the past two months. The index has been moving sideways for the past 2 months, trading between 1,474 and 1,532 points. Bullish performance in the western markets but bearish performance in the Asian market has divided investors’ sentiment. Investors in Asia are not as bullish even though the US market has shown improvements because the Asian market has experienced a bullish market earlier than the west. Therefore, the western markets are just catching up with markets in the east.

Investors who follow local economic developments may find the current development a little bit of a hurdle to the equity market. Bank Negara in its latest report said that inflation remains low at 2% and is manageable as long as it stays below 5%. Lately the government cut subsidies on sugar and fuel and we may expect further reduction in the near future. If inflation rises, the interest rates will have to rise and this does not bode well with the equity market.

After gold price made a historical high three weeks ago, price of crude oil went above US$90 a barrel, hitting a 26-month high last week. Light sweet crude oil price on NYMEX increased 1.8% in a week to US$90.62 a barrel. Price of gold on COMEX remained almost unchanged at US$1,385.60 per ounce as compared to the previous week. Bursa Malaysia’s crude palm oil price rebounded from a pullback two weeks ago. Palm oil price increased 2.1% in a week. Meanwhile, the US dollar extended its strength last week as the US dollar index, which weighs the US dollar against major currencies, rose 1.7% in a week to 81.07 points. The Malaysian Ringgit slightly strengthens against the US Dollar from RM3.154 to dollar two weeks ago to RM3.110.

The short term trend remains sideways as the FBMKLCI continues to whipsaw the short term 30-day moving average. The FBMKLCI was supported by the mid-term 60-day moving average. Similar to two weeks ago, the market is still in an uptrend but in a correction. The Ichimoku Cloud indicator has started to reverse and this indicates that support is weak and a trend reversal is expected within the next one month, especially of the index goes below the Cloud. The Cloud currently ranges between 1,480 and 1,510 points. The ADX indicator, which has been declining since mid-November, also indicates a correction for the FBMKLCI.

Momentum indicators were uncertain for the past few weeks, being whipsawed by the FBMKLCI sideway move. However, from the movement in the past one month, there is a bullish strength development as the indicators, the RSI, MACD and Momentum Oscillator, make higher lows. In the longer term however, there is still a bearish divergence since October. The Bollinger Bands indicator has not been helpful in the past two weeks because the FBMKLCI is trading in a sideway range, but a breakout in the Bollinger bands may provide us a clue to where the market is heading.

There is still no clear sign of where the market is heading as long as the FBMKLCI stays stuck in a sideway range. The Bollinger Bands should provide a clue. If the index breaks above the resistance level (the top band) at 1,522 points, then expect the index to surge in the short term and test the crucial resistance level at 1,530 points. The upside target remains the same at 1,600 points. If the index breaks below the support level (the bottom band) at 1,484 points, then expect the market to move test the crucial trend support level at 1,470 points.

The palm oil market extended its bullish trend last, month after the futures price went into minor correction, to a 33-month high on the 14th of December at RM3,766 per metric ton on Bursa Malaysia. The price immediately pulled back to a low or RM3,471 before settling at RM3,658 on the 23rd of December. Last month was the sixth consecutive months of gains for the price of crude palm oil. The price jumped 17.4% last month. Price of crude palm oil has increased 54% in six months. I’d expect the market to take a breather last month, but it continued to break the then immediate resistance level at RM3,400. Price is currently at historical high level.

The market continues to attract more interest as the trading volume is at its highest levels ever. Average daily trading volume for the past one month was 12,900 contracts, as compared to 12,300 contracts in the previous month. On the 18th of November, the number of contracts traded was 24,831 contracts, the highest ever in a single day. However, trading volume started to ease in the past 2 weeks, with only 9,700 contracts on a daily average. Open interest increased marginally last month as compared to the previous month. With the On-Balance Volume (OBV) indicator, these indicators indicate that there is strong increase in accumulation (long positions).

The bullish palm oil price is factored by the bullish sentiment in commodities. The OBV indicator indicates that there is very little selling pressure. Increase in soybean oil and crude oil prices attributed to the increase in crude palm oil price despite sharp decline in exports. Lower supply in vegetable oils is expected globally because of unexpected weather conditions. According to cargo surveyors SGS (Malaysia) Sdn Bhd, Malaysia's palm oil export estimates during the December 1-20 period fell 27% compared with the same period last month, to 799,071 metric tons. Another surveyor, Intertek Services Sdn Bhd estimated exports to 26% to 776,910 metric tons.

The strong up trend has caused average prices to continue to increase as well. The 30- day short term moving average, currently at RM3,456 has been supporting the rally since September well. The mid and longer term 60 and 90-day moving averages now ranges between RM3,000 and RM3,200. A new, steeper linear up trend line is created in the past two months, showing a very aggressive bullish market. From the trend indicators, there is no sign at all that the trend is being threatened.

Momentum indicators are a little mixed. The Relative Strength Index (RSI) and MACD indicators show a bearish divergence against crude palm oil price trend while the Momentum Oscillator shows a bullish convergence. A bearish divergence in an uptrend indicates a weak up trend and a convergence indicates a strong up trend. The wide difference between the top and bottom bands of the Bollinger Bands indicates that the price is still volatile, but the tightening of the bands in the past two weeks shows that the volatility has subsided. The average weekly trading range last month was similar to the previous month at RM200. This shows that the market is still volatile last month.

At a glance, the technical indicators do not show any sign of weaknesses at all. The uptrend is steadily strong. Fundamentally, with bullish sentiment over commodities, the uptrend may be able to supported. However, there are warning signs from the technical indicator that indicate the market may be overheating, or has created a big bubble.

Firstly, my extreme high price level is at RM3,600 and price has gone beyond this level. This, in my analysis, is considered highly overbought. Secondly is the high volatility which has been probably found a peak at RM200 on a weekly basis. Thirdly, the two out of three momentum indicators indicate a weakening up trend. Fourthly, the sharp increase in uptrend line is an indication of a bubble and lastly, the decline in volume for the past two weeks indicates weaker sentiment.

All these are signs that the market is ready for a correction. These indicators tell me that we need better catalysts in order for the uptrend to continue, and not the news that everyone already knew. Average price is between RM3,200 and RM3,400 and in my opinion, price of crude palm oil is more sustainable at this range.

I’d like to take this opportunity to wish all of you a merry Christmas and a wonderful and happy new year.

The Malaysian equity market, which is benchmarked by the FBMKLCI made a new historical high at 1,531.99 points on the 10th of November and also closed at its highest level ever at 1,528.01 points. However, the index pulled back to a low of 1,474.02 points before settling at 1,500.98 points. The market is uncertain despite the new record high. The index closed 6.6 points lower from the previous month and year-to-date, the FBMKLCI has increased 17.9%, making it one of the best performing markets in Asia. Trading volume was firm last month as compared to the previous month. Rising prices of commodities helped plantation companies to support the index and the window-dressing speculation of the next general election by mid next year boosted investors’ confidence.

The FBMKLCI is still in an uptrend but the directionless short term 30-day moving average indicates that the short term up trend is weak. However, the mid to long term 60 and 90-day moving averages are still increasing. The FBMKLCI is supported by the 60-day moving average which is currently at 1,490 points. The increase in the momentum indicators two months ago started to decline last month and without making any new highs, the uptrend momentum is considered weak. There is a bearish divergence between the momentum indicators and the FBMKLCI. Support level is strong at 1,475 points and the market is expected to move into a bugger correction if this support level is broken. Immediate resistance is at 1,520 points. The next upside target for FBMKLCI is at 1,600 points but this can only be achieved if the momentum indicators start rising.

The FTSTI continued its rally last month and made a new 34-month high on the 9th of November at 3,313.61 points before pulling back to the month’s low at 3,118.62 points. The market then rebounded and the index closed at 3,172.44 points. Despite the new high, the market is somehow uncertain because it closed near the middle of the trading range last month and fell 2% from the previous month. The FTSTI however has increased 9.5% year-to-date. Trading volume has declined last month as investors are staying sidelines after renewing their interests two months ago and wait for further market catalysts. Now that prices of commodities are surging, investors are worried about another commodity bubble like in year 2008.

 The decline in the short term 30-day moving average but increase in the mid and long term moving averages indicates that the FTSTI is in a short term correction. The index was supported by the mid-term 60 day moving average, currently at 3,165 points. Despite a rebound on the bullish momentum two months ago, the momentum indicators like RSI, MACD and Momentum Oscillators decline last month and went slightly below the respective middle levels. The momentum indicators have created a bearish divergence against the FTSTI and this showed that up trend momentum is getting weaker. The “head and shoulder” chart pattern on the chart indicates that the market is toppish and the trend is expected to reverse if the index breaks below the pattern neckline at 3,118 points. If the index stays above this level, expect more sideways move. Resistance is at 3,220 points.

In 1962 the Soviets moved nuclear missiles towards Cuba, a few hundred kilometres from the US coastline and the world held its breath at this breathtaking provocation. Fast forward 50 years and another country is moving nuclear armed ships within a few kilometres of a country with which it remains still technically at war * and within a short distance from a major regional power, who, although uneasy with its Korean neighbour, is even more uneasy at the proximity of nuclear missiles within a few hundred kilometres of its coastline. The world held its breath and the Korean markets started a slide that sent shivers through world markets. Currencies were the first to react, and the most volatile.

But is it an over-reaction? The weekly chart of the KOSPI suggests the long term uptrend for the KOSPI remains intact. The retreat was exacerbated by the face-off between North and South, but technically the retreat was not unexpected. All other issues aside, this is significant because the KOSPI tends to lead the behaviour of other regional Asian markets. A retreat to an established trend is bullish. A move below the established trend is bearish, and sends a warning signal to other markets to watch for similar change of trend signals.


The KOSPI chart has three main trend signals.

The first is the movement between the trading bands. The burnout above 1720 was a move above the upper edge of a long term trading consolidation band. The upside target was near 1900. This target level was achieved and exceeded. The pullback in the last week is a return to the 1900 projection level and is part of the rally and retreat retest process that follows a resistance level breakout.

The second is the uptrend line that defines the breakout from the trading band. This line starts in 2010 June and uses the lows of July and August as anchor points. The current market retreat is testing the support offered by this extended trend line. This is the normal behaviour in a trend, even though the retreat may show greater than normal volatility. The value of the trend line is also the value of the lower edge of the short term Guppy Multiple Moving Average. This shows traders activity, and a dip to this level confirms this is a trading reaction.

The third feature is the long term GMMA which shows investor behaviour. This is well separated, suggesting good support for the trend. The selloff last week did not cause compression in this group of averages. This suggests investors come into the market as buyers. The market can fall below the trend line and then use the long term GMMA as a support level. This is a significant retreat, but still within the context of a longer term uptrend.

There are strong uptrend continuation features in the KOSPI. This does not rule out some extreme down days, but it does not suggest the current activity is a precursor to a change in the trend direction. These retreats are a buying opportunity in anticipation of a rebound.

Of course the geo-political danger remains and that behaviour cannot be charted as understanding the behaviour of politicians is beyond the comprehension of almost everybody.

*There is no formal end to the Korean war, just a ceasefire, and South Korea and its allies are still technically at war with North Korea.

To read more articles and commentaries from Daryl Guppy, click HERE

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.