KLCI: Sideways correction expected

30 September, 2008: The Malaysian stock market was the least affected by the US financial crisis. However, the support of 1060 points was broken and this may lead the Kuala Lumpur Composite Index (KLCI) to find the next support.

Although technical indicators, such as Stochastic and RSI are indicating that the KLCI is oversold, the index may continue to decline because of strong downtrend momentum. This means resistance in the KLCI is stronger than support. The lower price of oil and weaker currency put more pressure on the local stock market.

Trading volume in the last two days of September was weak because of the Hari Raya Aidil Fitri holidays on 1 and 2 October. It is probably good for the market to rest for two days because of the uncertainty and high volatility. The KLCI might not rebound strongly because of the strong resistance and oversold level. Instead, it may move in a sideways correction.

The KLCI is expected to trade within an immediate support and resistance range of 950 and 1150 points, respectively.

FTSTI: Rebound expected, could face heavy resistance

The Singapore FTSE Straits Times Index (FTSTI) opened much lower on the last day of September. The failed US$700b bail-out plan for struggling financial giants in the United States sent jitters to all markets and caused strong volatility. The FTSTI opened about 120 points lower in the morning but managed to climb back near the previous day’s close.

The intraday low was the lowest in nearly three years. A rebound is expected because the FTSTI is currently oversold on the weekly chart. However, it may face heavy resistance because of the current financial situation in the United States.

The FTSTI has a downside target of 2100 points based on an ABC correction since the high in October 2007. A 61.8% Fibonacci retracement is at about 2200 points. Therefore, the FTSTI may only find support between 2100 and 2200 points. It is heading that direction but when it gets there, we will need to find evidence to support the idea that the market is bottoming out. It may face immediate resistance at 2500 points if there is a rebound, with a stronger downtrend line resistance at 2800 points.

HSI: Rebound expected

Panic filled the Hong Kong market early 30 September as the Hang Seng Index (HSI) opened almost 1000 points lower from the previous day’s close and formed an intraday low of 16,799 points. Like other markets, it rebounded and rallied throughout the day to close at 18,016.21 points, 135 points higher than the previous day’s close.

The HSI challenged the long-term uptrend when it fell below 20,000 points support level and it is currently still below this level. The current HSI level is oversold and a technical rebound is expected.

Momentum technical indicators such as RSI and Momentum are still indicating a strong downtrend. Therefore, the HSI is likely to face strong resistance if it rallies from the rebound. The HSI may face resistance at 20,000 points and if it is unable to break above this level, a major downtrend may form. Further resistance level is at 22,000 points.

Immediate support level is at this month’s low of 16,200 points. If the market does not have any positive catalysts, chart-wise it may head down to 15,000 points, which is a target from a cluster of Fibonacci expansions and retracements.

DJI: Volatility to continue

The US market became volatile when its giant financial houses began to breakdown. As an increasing number of financial institutions began to struggle, the US government was prompted to propose a US$700b bail-out plan for the ailing companies.

At press time, the lawmakers have yet to agree. On 28 September, when the bail-out plan failed to get congressional approval, the Dow Jones Industrial Average (DJI) recorded its biggest single-day fall ever, losing 777.68 points or 7%. On 30 September, it recovered more than half by closing 485 higher, to close at 10,850.66 points.

As the Bush administration attempts to get approval for the bail-out plan, the market is expected to continue being volatile from speculations on the banking and financial sectors. Although a technical rebound is expected for the DJI because of its oversold situation, weak momentum indicators, such as RSI and Momentum, suggest that the market may face heavy resistance.

Strong resistance is at 11,800 points while support is at 10,400 points. The support level is also a cluster of Fibonacci expansion and retracement levels.

The above commentary is solely used for educational purposes and is the contributor’s point of view using technical analysis. The commentary should not be construed as investment advice or any form of recommendation. Should you need investment advice, please consult a licenced investment adviser.