Composite Index Weekly Technical Analysis, 24/06/2005

Main Chart:
For the week ended on the 24^th of June, KLCI closed on the positive region with a mild gain of 1.02 points. On Wednesday, KLCI broke out from the 900 psychological resistance level but soon resisted by the 906 resistance line, which was also the resistance level on the 5^th of May. Therefore, R1 remains a strong resistance for KLCI. As for the support, immediate support would be the 10 days Bollinger Band Middle band. (Study A).

Bollinger Bands:
Ever since last week’s break-out of the descending triangle chart pattern last week, Bollinger Bands has been contracting, showing signs of consolidation after the break-out. Nevertheless, on Friday, Bollinger Bands contracted 42%. This is rather a good sign for the narrower the contraction of Bollinger Bands, the clearer the signal when the Bollinger Bands opens. Until now, KLCI is still supported by the middle band, and in fact, KLCI closed exactly at the middle band.

Volume:
Total market for the week has dropped 10.6%. Total volume for the week stood at 24.5 million lots. Although volume on a few trading days surpassed the 40 days VMA, it was rather unconvincing that the volume was sufficient to support the market momentum. (Study B)

MACD:
On Friday, MACD line has the first signal of reverse direction, but since the MACD is still situated above the zero level, overall market sentiment remains positive. On the other hand, MACD histogram continued ticking lower, and no sign of reversal can be found at this moment. Therefore, the technical correction shall continue. (Study C)

WinChart RSI:
WinChart RSI is still positioning above the 70% level, mid-term bullish zone; thus indicating the market sentiment for the mid-term is still bullish. As long as WinChart RSI maintains its position above 70%, there is still hope for more upwards movement for KLCI. (Study D) 

Stochastic:
% K of Stochastic has broken down the 70% and touched the 50% level while %D is still lagging behind, staying above the 70% level. Therefore, there is no confirmation for the bullish short-term sentiment has ended. However, since the highly sensitive %K has given the first signal of weakness, it pays to trade with high cautions. (Study E)

Important Note:
Although +DI on the weekly DMI (Directional Movement Index) has crossed the –DI line, ADX remains low. Therefore, signal is unclear. Readers are advised that whenever the weekly ADX is staying at such a low position, it suggests that the potential of the coming trend is rather strong, be it bull or bear.

In the Nutshell:
To sum up our weekly analysis, KLCI has once again tested by the 906 resistance, and failed to break-out; however, there are no convincing signs for a reversal yet. Still, we do not discount the possible break-out next week; because, overall mid to long term market sentiment remains positive. In our opinion, Bollinger Bands would be the best indicator to seize the next move of KLCI.

Copyright 1997-2005 Straits Index (M) Sdn. Bhd.