Analysis: KLCI & FKLI (CI Futures)

Last week was a significant week for the market & for M'sia politically & economically. Politically Tun Dr.M, the most ardent critic of the PM & the Govt dramatically lost in his attempt to win a delegates seat to the UMNO Assembly from his old stronghold of Kubang Pasu. He polled 9th out of 17. Only 7 delegates were elected. His son also bore the brunt of the backlash & only polled 5th. In 2005 he was 1st. Politically it was a severe embarassment for Tun & strengthens Pak Lah's position. If even Tun's own stronghold does not support him then he can never say that he has UMNO's backing. But knowing Tun he will find another excuse to speak out but definitely his strength politically has waned & he can say what he wants, but this is the final straw & he has now been put to pasture. Thanks for everything Tun, but long live the new PM.

Without Tun's criticism perhaps Msia can get back on track to doing what we really should be doing, building up a new economy based on human capital, new technologies & new initiatives.

Economically Budget 2007 & 9MP should boost the economy & keep it humming despite fears of more interest rate hikes & a recession in the US. Fears - maybe there will be a soft landing, we don't know that yet but a slowdown for the next 3 years can be expected. Msia will also be affected as the US is our major trading partner, so we need to keep domestic demand up & Govt pump priming will be very necessary.

KLCI - we saw the expected correction at the 970 level. The rise from 900 pts is unsustainable without a decent correction. The question is at what support level will the CI stabilise & reverse back into a bullish move upwards towards my target of at least 1021 by Chinese New Year 2007. Is it 950, 940, 921, 900 or 883? I analyse the CI here & compare it to the last fall from a Rising Wedge (RW) in May 2006.

Chartwise, Friday the CI found some support at the 10-day Exponential Moving Average (MAV) & formed 2 spinning tops (almost Dojis) on Thurs & Fri. The 2 ST can mean a possible reversal but it is unlikely, more likely it is just indecision. H'ever Vol even when falling has been low, so there is no large scale selling. Is that because retailers are out of the market bec of previous falls in penny stocks like IRIS, Mobif, etc? Maybe or maybe institutions are still holding on to their blue chips.

On the positive side, prices remain above the middle Bollinger Band within a still rising BB. It is also above the 10 & 30 day MAV (red & green lines) & above the 953 support line. Contrast that with May when it fell below all the above. When prices fall below the BB, MAV & support then we know for sure that it will be very bearish. So for now the optimists may hope that the correction may be short (but I doubt it).

On the negative side, RSI has fallen sharply & MACD has just made a bearish cross. The same thing happened in May & it was followed by big falls in the index.

So what to do next? Well, overall the index is weak. Will we see strength & buying coming in to push it up again this week? I doubt it. But technically speaking it is weak but not totally bearish. H'ever this is not the time to enter the market. Signs are that there is a greater likelyhood of a fall than a rise. I will watch the market for it to show its direction. Will it fall below the mid BBline, will the MACD fulfil the bearish cross, will it fall below th 30-day MAV & 953 support? Or will it give us a strong white candle & move up again. These are signals I will watch out for & until then I will wait patiently by the sidelines.



FKLI (CI Futures) - formed a bullish engulfing candle on the daily chart at the middle BB. Interestingly in May at the same point (mid BB line) it formed a white harami candle, normally a bullish sign, yet the next day it fell below the BB line. Will this happen again tomorrow? I am not into crystal ball gazing, but thats possible bec FKLI has a bearish MACD cross, falling RSI & the white candle had low Vol (so its not very convincing). Will the 940 support hold? If it falls below the BB line, 940 & 30-day MAV (green) then will see bigger falls as happened in May. 921 & 905 provide possible strong support if it falls.


Another strong indicator of bearishness is the weekly candle which is showing a very bearish black engulfing candle. We should never ignore the weekly candles which to me are even more important than the daily. Based on this the Futures is in for a definite fall this week. A good opportunity to short the FKLI.


Overall Analysis: The CI & Futures are still going to fall. Futures are also at a 7 point discount to the CI & if it falls further the CI will also follow. So the market is still in a very bearish state.