Invest Lobby

The market is still lacking direction despite closing slightly higher than last week because the FBMKLCI index failed to break above the key resistance level at 1,540 points. The highest intraday level it moved last week was 1,529.41 points before it pulled back to the lowest intraday level at 1,511.27 points. The market was in a see-saw pattern amid uncertainty in the North African nations' crisis which led to higher oil prices. The FBMKLCI settled at 1,516.91 points Thursday, 10 points higher than the close the week before.

The market was divided between some optimism on vibrant economic activities and concerns over rising commodities prices which may damper economic growth. Crude oil prices continue to make new highs while the Ringgit remains firm against the US Dollar. Investors in Malaysia continue to stay in sidelines as the trading volume remains about the same as the previous week. Average daily trading volume for the past one week was 1.2 billion shares.

US consumers are already feeling the pinch when filling up their cars with fuel and this is likely going to prolong because refiners are paying about US$15 premium over the crude oil futures price, which currently trading at US$104 a barrel on NYMEX. Gold price remains steadily high at US$1,430 an ounce as investors continue to invest in this precious commodity while more uncertainty looms in the equity market. If prices of commodities continue to stay high in the near term, equity markets may start to tumble. I’d expect commodities prices to increase further because there are still no signs of the North Africa nations’ crisis slowing down.

Bank Negara recently announced that interest rates are going to be maintained at current level of 2.75% despite rising inflation to continue to spur economic growth. The Malaysian Ringgit remains firm against the US Dollar at RM3.033 to a dollar. I guess that the government is encouraging investment rather than savings so that the national economic programs can be funded. The government expects the private sector to lead in the Economic Transformation Program (ETP). However, Thailand has recently raised their key interest rate by 25 basis points to 2.5%.

There are no changes to the technical indicators on the FBMKLCI chart. The short to long term moving average continue to indicate a correction phase in the short term. For the past one-and-a-half month, the FBMKLCI has been whipsawing around these moving averages and the index is currently between these averages. The Ichimoku Cloud indicator suggests that the market is still under a dark cloud and it also indicates that the dark cloud is getting thicker. The dark cloud indicates a bearish market expectation. The market is expected to get out of this bearish weather if the FBMKLCI can climb above the resistance level of the cloud between 1,520 and 1,540 points.

Momentum, which has turned bullish in the short term two weeks ago, continues to show increasing strength last week. The Relative Strength Index (RSI) and Momentum Oscillator indicators continue to increase but are just slightly above the middle levels. The MACD indicator continues to stay above its key 9-day average. The bulls and bears strength in the intermediate term is currently at equilibrium because the indicators are at middle levels. The Bollinger Bands continue to tighten, indicating lower volatility and the FBMKLCI is trading near the top band. These indicators support the trend indicator which indicates a sideway market.

In a sideway market, price normally pulls back from resistance levels and rebounds from support level. The key support level for the FBMKLCI is at 1,470 points while the key resistance level is at 1,540 points. Since the index is near the resistance level and the fact that the market was unable to test the resistance level last week, the FBMKLCI is more likely going to slide downwards towards the key support level. Like I have mentioned in the past few weeks, the market direction would be clearer once the FBMKLCI breaks below the support level or above the resistance level.