Markets all over the world rebounded last week after moving into a bullish trend correction in the last two weeks. A month ago, the Europe market, bench marked by the FBMKLCI breaks out from a correction when the index was at 1,200 points and went as high as 1231.49 points before pulling back to test the Bollinger Bands’ middle band. Then it rebounded from this middle band, which is a 20-day moving average to settle at 1230.09 points on October 8. The FBMKLI increased 28.2 points or 2.3% since last month. The market is currently testing an immediate resistance level at 1,230 points.
Trading volume was disappointing as it only increased slightly in this last week when the market rallies after the rebound. The average daily trading volume last week was 750 million shares and the previous week’s average was 662 million. Average daily trading volume below 1billion shares are considered weak. The market was slightly bullish because of positive leads locally and internationally. Locally, industrial production and export numbers were growing on-month and jobless rate fell. World Bank confidence about having a positive GDP in year 2010 and increasing foreign participation in the local equity market boost confidence further.
Internationally, governments in developed nations are confident that the global economy is improving and Australia is the first G-20 nation to raise key interest rates since the start of the global financial crisis more than a year ago as the government believes that the emergency low rates are no longer needed. In the world’s largest economy, manufacturing increases and jobless claim declines.
The US Dollar continues to slide against major currencies, continuing its down trend. This again has pressured prices of commodities to increase. Price of Gold in COMEX continues to make historical highs and is currently at US$1,050 an ounce, increasing 5% in a month. Crude Oil in NYMEX continues to stay around US$70 a barrel. Rubber futures in TOCOM slightly rose month-to-month but it jumps about 6% last week to JPY$214.80 a kg. However, Crude Palm Oil futures in Europe Store Exchange declined from EUR 2,200 per metric ton a month ago to EUR 2,030.
The FBMKLCI is well supported by the short term trend. The benchmark index continues to stay above the short to long term 30 to 90-day moving averages despite several pullbacks from the uptrend that started in April. A major correction is yet to be seen in this 6 months bullish trend. Momentum indicators are about to turn bullish again after mixed signals in the past few weeks.
The RSI and Momentum indicators are starting to move away from the middle level and the MACD indicator is about to cross above its trigger line or 9-day moving average. ADX indicator has just started to increase again, showing good strength in momentum last week.
The Bollinger Bands started to expand again with the FBMKLCI penetrating the top bands after testing the middle band two weeks ago. The same situation (the expansion) happened exactly a month ago and the FBMKLCI made new highs for the year. Therefore, we may expect the same to happen again and this time the projection is 1,280 points before it finds the next resistance. The average daily trading range is the same as the previous week.
The immediate support and resistance levels are still at 1,196 points and 1,230 points respectively. The FBMKLCI is currently testing this resistance level for the second time in a month. The market is set to test newer highs because of the strong bullish reversal and breakout. The next resistance level is between 1,280 and 1,300 points. However, if the market fails to make new highs and the FBMKLI falls below the 1,196 points support level, then the next support level it is going to test is at 1,150 points.
Looking ahead, the leading Ichimoku Cloud indicator continues to contract last week and this indicates that the support for the uptrend is getting thinner. Being a leading technical indicator, a major trend reversal is not expected until the cloud bands cross. Therefore, there is still a chance for the market to maintain its uptrend at least for another month.
The market sentiment is still bullish and the FBMKLCI is expected to rise in the short term to the next resistance level between 1,280 and 1,300 points. This is only valid if the benchmark index stays above the immediate 1,196 points support level. In the longer term, a major correction is expected to take place once the index moves into the next resistance level. My price map/direction forecast chart for FBMKLCI remains the same as last month.
Therefore, current opportunity is only good for short term traders who trades short term profits because the market is expected to test new highs but with a limited upside. However, accumulating shares for the long term (3 to 5 years) may be too risky at current levels as prices are way above the long term average. Opportunity for long term accumulation only exists when the market pulls back to its long term average or below it (a 200-day moving average can be used as a benchmark).
So, longer term investors have to patiently wait for a major correction to happen. My longer term forecast (1 year) for the FBMKLCI when it goes into a major correction is still at 900 points and therefore accumulating shares when the index moves to this level or slightly above provide a better low risk opportunity for longer term investors.