THE KL Composite Index (KLCI) successfully vaulted the 1,400-point psychological barrier and made a new record high early last week, boosted by the higher US markets.
The rally failed to expand with values congesting for a couple of sessions and was followed by an abrupt sell-off on Friday influenced by a sharply lower Dow Jones. This forced the index to return all of its previous gains.
Investors are generally confused about the random nature of the KLCI. The US markets are all that matters these days.
Last week witnessed the meltdown in financial stocks in the United States and the Federal Reserve’s decision to cut rates by 25 basis points received an icy reception. Record high crude oil at US$96.20 a barrel continued to be ignored by market participants.
With worldwide markets at or near historic highs, the upside potential is lower compared with the downside risks. At this juncture, the markets can correct drastically for a lot of reasons.
The KLCI fell from a new high of 1,423.81 points to a week's low of 1,385.85. It rebounded on Friday to end the week with small losses at 1,397.48, off 0.87 point or 0.06% from previously.
Most of the main index-linked stocks recovered from earlier losses and ended the week in the minus column.
Maybank, Public Bank, Tenaga Nasional, MISC, Telekom, Genting, Petronas Gas, DiGi.com and RHB Capital settled with minor losses and took away a combined 7.67 points from the index.
IOI Corp, Bumiputra-Commerce, Plus Expressways, KL Kepong, and MMC Corp closed with minor gains and supported the index with a total 6.12 points.
Volume of the KLCI for the week rose to 1.04 billion compared with 897.73 million shares a week earlier. The daily average volume increased to 208.46 million from 179.55 million shares previously.
The candlestick chart closed the week negative with the formation of a “falling window”. This negative chart setting suggests the newly developed bearish cycle would continue.
An important chart hurdle now stands at the 1,405–1,420 level. The main trend could turn bullish again if these levels are vaulted this week.
Chart support for this week is seen at 1,390–1,380. Further downward adjustment would occur if these levels are breached.
Most of the daily technical indicators closed the week neutral to slightly negative and suggested the index would enter into sideways band trading in the immediate term.
The daily stochastic gave the short-term sell signal on Oct 31 and stayed negative for the near-term trend at Friday’s close. The oscillators per cent K and D settled the week sharply lower at 67.95% and 83.23% respectively.
The daily Money Flow Index (MFI) plunged from a week's high of 100 points and closed sharply lower near the neutral zone at 63.16. The MFI indicated that strong distribution took place last week.
The main trend-tracker, the 3- and 7-week exponentially smoothed moving-average price lines (ESA lines), remained in bullish divergence despite the strong drop last Friday and showed the main trend was still bullish.
The short-term trend-tracker, the 3- and 7-day ESA lines, ended in negative convergence at Friday’s close and showed the immediate-term trend was attempting a cycle reversal.
The 5-day Relative Strength Index plummeted from an oversold position at 83.10 points on Oct 31 and closed the week sharply lower at 52.15. At present, the daily RSI is indicating the immediate underlying strength of the index is neutral to slightly negative.
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