Invest Lobby

The Malaysian equity market closed generally higher last week as compared to last week but continues to trend sideways as it lacks confidence despite a warm economic growth projection from the Central Bank today. Markets rebound sharply earlier this week after the sell down in the Japanese market but started to weaken in the past two days. The benchmark FBMKLCI closed 1.5% higher in a week to settle at 1,513.84 points Thursday. The index traded between 1,489.27 and 1,514.91 points with a slightly higher trading volume. Daily average trading volume last week was 1.3 billion shares as compared to 1.1 billion shares in the previous week.

Malaysia is set to have a lower GDP projection of 5% to 6% for this year while last year Malaysia’s economy grew 7.2%, according to Bank Negara. The central bank added that inflation is set to rise further to average around 2.5 to 3.0% this year if oil prices continue to stay above US$100 a barrel. Crude oil has gone up to its highest level in 30 months at US$106.6 per barrel on the NYMEX in time of writing. I don’t think it will average below US$100 this year and further rise is expected. Therefore, prepare for inevitable hike in fuel prices which will eventually lead to higher inflation and the Central Bank will have no choice but to raise interest rates.

Besides the rising price of crude oil, gold price hits record highs again last week. At time of writing, gold price is at US$1,443 an ounce as compared to US$1,404 in the previous week, a 2.4% hike. This was likely because of the weakening US dollar and the uncertainty in the equity market. The US dollar index hits its lowest level in 15 months. Because of the earthquake in Japan, the Japanese Yen is at its strongest level ever against the green back. The Malaysian Ringgit also strengthened against the US dollar this week to RM3.025 to a dollar. Palm oil prices continue to correct downwards by declining 2% this week to RM3,270 per metric ton.

There’s not much change in the FBMKLCI technical readings. The index is still in a correction is currently at the short to long term moving averages range and looks toppish because of the head and shoulders pattern formation and that the moving averages have started to stop increasing. The Ichimoku Cloud, which continues to expand, indicates a stronger resistance forming in the near future.

Momentum indicators are still slightly bearish in the long term. Readings from momentum indicators like RSI and MACD just came up to its middle levels. In the short term however, the bulls are gaining momentum. In the past three weeks, the MACD and RSI indicators’ pivot lows are in a positive divergence against the FBMKLCI. This shows that the market is being supported well. The Bollinger Bands continue to slightly tighten, indicating a less volatile market. It also means that there are no major moves in the market.

The after-effect of the Japanese earthquake disaster seems to have settled down and markets regionally have started to gain some confidence. However, the worry is now about the rising commodities prices which may damper economic growth and the on-going political crisis in Libya, which produces 2% of total global crude oil.

While the market is expected to trade within the key support and resistance level between 1,470 and 1,540 points, the Sarawak state election may provide some trading opportunity in timber, oil and gas and construction companies. This, together with a slight bullish divergence may send the FBMKLCI to test the 1,540 points resistance level in the near term.

The market may only find direction if the support or resistance level is taken out. A breakout below the 1,470 points support level confirms the head and shoulders pattern with a target level of 1,355 points. A bullish breakout above 1,540 points will see the index rise to the target level of 1,640 points.

Daily KLCI chart as at 24 March 2011 using NextVIEW Advisor Professional