Invest Lobby

We are now moving into the second quarter for this year and the market has so far been in a correction after the benchmark FBMKLCI climbed to its highest level ever in early January at 1,574.49 points. Since then the market went into a correction to a low of 1,484.14 points primarily because of the Japanese earthquake. However, the market rebounded sharply and is currently at 1,545.13 points, which is the highest in two months. Year to date, the FBMKLCI mildly increased 1.7%.

Last Thursday, the FBMKLCI closed 2% higher in a week after trading between 1,511.98 and 1,545.13 points. It was a bullish week as the Japan earthquake and now nuclear crisis has been overshadowed by strong performances in the oil and gas, utility and finance sectors. The market was more active last week as compared to the past few weeks. 1.7 billion shares exchanged hands last week on a daily average as compared to 1.3 billion shares in the previous week. The strong increase last week with high volume shows that investors and traders have gained confidence that the market can move higher.

The bullish move last week was also supported by strong rebounds in regional markets including Japan. The Japan Nikkei 225 index has recovered about 62% from the steep fall after the earthquake. The Sarawak state election this month may be an indicator for the federal government to set the general election in the near term and of course with every election there’s always spending from the government. Construction sectors should benefit from elections.

Probably the only concern now is rising commodities prices. Continuous rise in commodities will cause higher inflation, which in turn cause interest rates to hike to buffer the inflation. I am expecting commodities to rise further. Crude oil price in NYMEX rose to US$106.8 a barrel Thursday, the highest level in 30 months. I am looking at US$120 in the near term. Price of gold is trading sideways but at historical high levels. COMEX gold settled at US$1,432.90 an ounce Thursday. Price of crude palm oil rebounded from a low of RM3,163 two weeks ago to RM3,326 per metric ton. US dollar continues to weaken against major currencies last week but remained flat against the Malaysian Ringgit. The Ringgit is quoted at 3.03 against the green back.

After staying below the short to long term 30 to 90 day moving averages for the past two months, the FBMKLCI has now gone above these averages. The averages range between 1,510 and 1,525 points. The index also broke out from the key resistance level of 1,540 points which I have mentioned in the past few weeks and it also penetrates above the Ichimoku Cloud. The breakout shows that the correction is over and we are now looking at a bullish trend continuation.

Two weeks ago, I have mentioned that the momentum indicators are showing that the bulls are gaining momentum in the short term. The bulls are now taking over the bears with momentum indicators like MACD, RSI and Momentum Oscillator has gone way above the middle levels. The FBMKLCI’s strong rebound has also caused the Bollinger Bands to expand strongly on the upside. All these indicators show that the market has set its pace to another bullish rally in the near term.

What troubles me is that the current situation may looks like a repetition of market performances in year 2008. Exponentially rising equity markets and rising commodities prices. We are seeing a bubble developing but I think the bubble is not big enough yet to burst. Therefore there are opportunities in the short term as the market is expected to rise further.


A bullish breakout of 1,540 points will see the index move to its target level of 1,640 points within a period of three months. But first, the index may test the historical high resistance level at 1,576 points and I am expecting this to happen in the next two weeks. However, it may take a longer time if the index falls back below the 1,540 points level, which now becomes the immediate support level.

Daily KLCI chart as at 31 March 2011 using NextVIEW Advisor Professional