FBM KLCI futures:Bulls seem to have upper hand

THE FTSE Bursa Malaysia Kuala Lumpur Composite Index futures October contract on Bursa Malaysia Derivatives closed higher at 1,238 with an open interest of 15,037 contracts last week.

The defensive mechanism of the market was intact judging by the resistance of the October contract to a break below the 1,200 level last week. The low of the week was kept at 1,203 with the contract rebounding to the upper resistance at 1,240. Trading opportunity materialised at the base and bulls emerged with renewed aggression.

As of last week, the Relative Strength Index and the Commodity Channel Index were warming up as the October contract picked up steam to ram through the resistance lines. The underlying defensive elements in the futures market continued to surprise. At the low of 1,203 the bulls hardly batted their eyelids despite the sight of the charging bears. This is one of the reasons for the upward revision of the base support back to the 1,200 level.

At the week's close, there were a few notable technical changes. First, a divergence is noted between the Commodity Channel index and the rising market. While the former is beginning to correct down, the latter is showing signs of strength. At this juncture, where trades have been normalised to trading momentum, a further decline to the neutral will likely to draw in corrective pressure. However, as the remaining oscillators such as the Relative Strength Index are not in concurrence, a downward correction may be delayed.

The second significant technical signal came in the form of a potential positive crossover on the Moving Average Convergence Divergence (MACD) indicator. As both lines on this indicator are near an eleventh hour bullish signal , this suggests defensive action may be in place to keep the rising weekly trendline relevant, cancelling any long-term bearish outlook.

Tactically, we are likely to see sentiment being kept at an upbeat pace. While it is reasonable to expect some sideways pressure to prevail in the market, the overhead resistance at 1,240 is revised upwards to 1,250 this week.

The incoherent signals highlighted above could point to a mixed recovery in the futures market. One could ignore the underlying positive tone; the presence of intrepid bears may be disruptive but not damaging.

Technical outlook

The Moving Average Convergence Divergence indicator remains negative with the faster below the signal line. Both lines remain at the positive region.

The daily Relative Strength Index closed at the overbought.

The daily Commodity Channel Index finished at the neutral.