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In my previous article I mentioned that the market is expected to move into a sideway correction because of weak momentum in the short term up trend. The FBMKLCI managed to stay above the 1,520 points immediate support level and did not go above the 1,565 immediate resistance level. The benchmark index ended half a point higher from the previous week’s close to 1,526.33 points after trading between 1,514.94 and 1,535.09 points. The market was concerned about rising inflation.

The Consumer Price Index (CPI) which is used as a yardstick to measure inflation, increased by 2.8% for the first quarter of this year according to the Statistics department. Commodities prices continue to soar and this is another catalyst for rising inflation. Market was a little cautious and trading volume in Bursa Malaysia was slightly lower than the previous week. 1.2 billion shares were traded on a daily average last week as compare to 1.3 billion in the previous week. However, the volume was strong on Thursday with 1.5 billion shares when the market fell 4.69 points and this shows selling pressure.

Commodities prices continued its upward rally after a slight pullback in the previous week. Price of crude oil in NYMEX rose US$3.32 to US$112.35 a barrel in one week. Price of Gold in COMEX rose 2% to a new historical high at US$1504.90 an ounce. In the local front, price of crude palm oil went sideways to close at RM3,312 because of weak demand. Meanwhile the US dollar weakens against the Malaysian Ringgit and against major currencies. The Malaysian Ringgit was quoted at RM3.012 against the greenback. In the previous week, the Ringgit was quoted at 3.022.

The sideways movement last week extends the correction for the Malaysian equity market. The FBMKLCI was not able to break any immediate support and resistance level. This maintains the short to long term 30 to 90 day moving averages sideways at about 1,524 points. The FBMKLCI is just slightly above this level. In the long term, the up trend is still bullish as the direction of the long term average is still increasing. The index is still supported well because the FBMKLCI maintains above the moving averages and the Ichimoku Cloud indicator.

The lack of direction last week causes momentum indicators to decline further. The momentum indicators started to decline two weeks ago. The MACD indicator continues to decline but slightly above the middle level. The RSI indicator move sideways but slightly below the middle level while the Momentum Oscillator, which was above the middle level since late March, went below the middle level last week. The Bollinger Bands continues to decline as the FBMKLCI started to trade near the middle band. These indicators maintained that the trend is weak and the market is lacking direction.

The market remains bullish in the long term as long as the FBMKLCI stays above the major support level at 1,480 points. Technically, the long term target is at 1,640 points. The immediate support and resistance levels remain at 1,520 points and 1,565 points respectively. With a strong short term bearish momentum late last week, I am expecting the index to break below the immediate short term support level and test the psychological support level at 1,500 points.

Daily KLCI chart as at 21 April 2011 using NextVIEW Advisor Professional