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The bullish momentum which has started to develop 2 weeks ago was not able to push the market higher last week. The FBMKLCI traded sideways in a range between 1521.71 and 1547.94 points and settled at 1,540.94 points Thursday, 3 points lower than the previous week. The market was put down by the news earlier in the week that there was going to be a fuel price increase but the market rebounded when the government mentioned that there will be no price increase for now. There were no fresh leads to push market higher except for mixed corporate earnings for the first quarter of 2011.

Trading volume continues to decline as investors are waiting for fresh leads and are divided by bullish and bearish expert views about the global and local economic outlook. The daily average trading volume in Bursa Malaysia in the past one week was 857 million shares as compared to 975 million shares in the previous corresponding week. The volume indicates that market is still in a consolidation.

In the commodities market, crude oil price continues to consolidate and supported around US$100 a barrel. Gold price rebounded and closed 1.8% higher at US$1,520 an ounce at time of writing. Crude palm oil continues its upward rally for three consecutive weeks and is currently at RM3,416 per metric ton, up RM26 this week. Two weeks ago, it increased 4%. The Malaysian Ringgit continues to weaken against the US Dollar and is now quoted at RM3.04 against the green back as compared to RM3.01 in the previous week.

Technically, the market is still in a consolidation phase as the short to long term FBMKLCI moving averages continue to move sideways. The slight increase in the short term 30-day moving average and the FBMKLCI staying above the averages indicate that the short term trend is slightly bullish. The averages range between 1,525 and 1,530 points. There is no change in direction and width of the Ichimoku Cloud indicator for the past three weeks. Like the moving averages, the cloud width which acts as a support level ranges between 1,520 and 1,530 points.

Momentum indicators pulled back last but still remain in the bullish zone. The RSI indicator retreated to its middle level early last week but rebounded from this level when the index rebounded. The MACD almost crossed below its moving average trigger line but still managed to stay above it. The Momentum Oscillator now makes a new high since mid-April. The FBMKLCI pulled back to the middle band after trading near the top band for the past two weeks. However, the band is still expanding and the FBMKLCI is still above the middle band and this means that the momentum is still bullish in the short term.

When the FBMKLCI broke above the 1,540 points resistance level two weeks ago, a rally to the next resistance level at 1,560 points is expected in the short term. Last week’s pullback shows that the market has yet to the confidence. With a support in the market in terms of trend and momentum, there is still a chance for the index to test the next resistance level. However, things may change if the index breaks below the immediate support level at 1,520 points. Key support level to maintain the uptrend continues to stay at 1,480 points. This week, I am expecting the market to continue to trade sideways with a bullish bias.

Daily KLCI chart as at 26 May 2011 using NextVIEW Advisor Professional

For this week, only one top performer is picked (above RM0.50 with good liquidity and volatility) because the others were low in volume. The stock highlight this week is Esso Malaysia Berhad (ESSO). Its share price rose 17% last week to RM5.71 and is at the level before the Asian financial crisis in 1997.

Fuel providers have benefited from the hike in crude oil prices this year. Esso’s share price has risen 108% since the beginning of this year. Despite the high price, there is still a chance for Esso’s share price to be at RM6.50, based on technical price projections. However, we may expect a short term pullback to around RM5.40 before continuing the uptrend. Key support level for the uptrend is RM5.40.