FBM KLCI futures: Further correction on the horizon

THE FTSE Bursa Malaysia Kuala Lumpur Composite Index futures (FBM KLCI) February contract on Bursa Malaysia Derivatives closed at 1,257 last Friday with an open interest of 15,349 contracts.

Weak performances on regional stock markets coupled with failure to overcome new resistance levels resulted in the futures contract retreating to its support line at 1,250.

The barrage of selling drove the futures market momentum into the middle of the Bollinger Band with buying evaporating in the heat of the bearish sentiment.

By the week's end, the technical signals remained weak and fragile. On the daily chart, there is still no firm indication of any technical rebound on the horizon despite the 50-point correction.



The damage to the bullish signals was most severe on the daily charts with the key Relative Strength Index and the Commodity Channel Index both falling deep into the oversold with further retreat likely.

Trading volume too has eased off, suggesting that the daily price has just experienced a bearish inverted 'V' pattern on its weekly chart. Judging by the presence of a plunge in the weekly RSI oscillator, we are not optimistic that any meaningful technical rebound may materialise before the Chinese New Year holidays.

Indicatively, the southbound directions found are tell-tale signs of a possible major change in trend on the charts as over the past one year we have not seen such deep corrections in the Bollinger Band on a weekly basis.

The weekly Relative Strength Index and Commodity Channel Index have only begun to sink from the overbought and prices are resting at the neutral territory.

Tactically, the futures spot contract has breached its indicative support at 1,250 in anticipation of a deeper correction in the immediate term. The correction last week has only opened up the bearish potential in the short-term chart.

With the weekly oscillators descending into the neutral, the spot contract could be expecting more to come with the next support target at 1,230 holding back some of the selling.

Technical reports

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

The daily Relative Strength Index closed at the oversold level.

The daily Commodity Channel Indicator finished at the oversold level.

bernard@tactician.com.my.

The subject expressed above is based on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.