Battle line for KLCI futures seen at 1,065

Published: 2009/06/01

THE June contract on the Bursa Malaysia Derivatives Bhd closed at 1,056.5, with a decline in open interest to 14,625 contracts last week.

The May contract experienced heavy volatility before its expiry last Friday as traders tried to cope with the oscillation of the cash index. Traders were quick to switch to the now active June contract as they move away from the May contract.

Sentiment in the futures market remains largely positive as it ended with a 12- point premium over the composite index last week.

Its daily oscillators were still on an upward momentum when the market closed with both the Relative Strength Index (RSI) and the Commodity Channel Index (CCI) indicators edging higher to the overbought line.

Taking the cue from a firmer and higher price, the rising momentum is likely to push both these signals into the overbought territory as expectation of a better performance in the stock market this week increases buying activities.

Overcoming the barrier at 1,050 remains the immediate challenge for the stock index.
As the composite index struggles to break and close above the 1,050 level there are repeated worries that the index may retreat back to its immediate support at 1,030 line should it fail to break this barrier.

This would then translate to an added risk premium on the futures contract once it breaks into the overbought region on the RSI and CCI.

With futures prices already at a premium and has been moving ahead of the stock index, the battle line for the futures can be found at the 1,065 this week.
Selling pressure may increase at this level.

The weekly chart on the futures contract remains largely the same as the rising trendline remains intact although the speed of its momentum improvement slowed. This may lead to consolidation with upside for the market over the medium- term period.

Tactically, we are expecting the futures to lead the stock index as expectation of a better performance early this week.

The overhead is at 1,065 and should the volume increase with an improvement in open interest there may not be any major worries for the bulls.

Technical Reports
The Moving Average Convergence Divergence (MACD) remains negative with the faster below the signal line. Both lines are at the positive region.
The daily RSI closed at the neutral.
The daily CCI finished at the neutral.
bernard@tactician.com.my.

The subjects expressed above are based purely on technical analysis and opinions of the writer. It is not a solicitation to