FBM KLCI futures: Bulls rule but resistance looms

THE FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) futures January contract on Bursa Malaysia Derivatives closed at 1269 with an open interest of 14,440 contracts last week.

Nothing unexpected took place during the holiday-shortened week as trading was dogged by benign volatility despite a slight pick-up in volume. This may be attributed to rollover activities as traders closed out year-end contracts. Moving into the new year and with a new spot month contract, trading may pick up gradually.

Consolidation activities dominated trading for the past three weeks as momentum began to slow down ahead of the year-end. The first full week's trading in the new year may see renewed interest in the coming days.

Momentum has slowed tremendously in the past weeks with the daily Relative Strength Index and the Commodity Channel Index settling back to the neutral region after their short trip into overbought territory. The January contact will likely complete its cycle by dipping closer to the oversold region early this week before any rebound takes place. Here, the daily Moving Average Convergence Divergence indicator is nearing a positive crossover, securing the bulls in the short-term view.



The spot contract's weekly chart has settled below the upper Bollinger Band but has remained above the mid lines, suggesting that the bulls are still in control. What is troubling, however, is the eleventh hour signal on its MACD lines which are about to initiate a negative crossover - this could signal some complications ahead as the bulls' path may not be a straight and easy one. Trading volatility could pick up and there may be key resistance ahead for the futures contract, starting at the 1,300 level.

Tactically, for this week, trading in the spot contract may still be limited to the 1,250-1,280 range. However, it may initiate fresh attempts to crack this band and may begin by mounting a challenge to the latter by the end of the week.

Technical outlook

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