KLCI futures to extend recovery

THE December KLCI futures contract on Bursa Malaysia Derivatives closed higher at 873.50 with an open interest of 20,985 contracts last month.

Trading sentiment improved slightly with the contract closing firmly above the cash index with a decent 7-point premium. Traditionally, year-end closing activities will keep the bullish sentiments on the market in check, resulting in some degree of reluctance by traders to increase their short positions.

The fund-raising by local investment entity Permodalan Nasional Bhd or PNB last week spurred talk of possible buying into the stock market. With more funds raised, many expect the futures market to firm too, especially given last week's recovery in the New York Stock Exchange's Dow Jones Industrial Average.

The KLCI futures market's technical rebound from the 850 level last week signalled a firmer base and more consolidation with upside bias from here. With trading volume remaining largely uninspiring and no major change in open interest, it is believed that there are accumulating activities going on. The firm rebound may spill over into this week.

The daily oscillators are hooking down from the neutral region as momentum retreated last week. This may lead to a weaker opening this week, however, as momentum recovery will be gradual. Traders may be slowly accumulating their buy positions ahead of an improved weekly outlook.

The weekly Relative Strength Index is climbing out of oversold territory after a slew of selling activities in the market in the past few weeks. The weekly Moving Average Convergence Divergence (MACD) indicator is pointing to the same direction as it begins to change its weekly stance. We may find momentum catching up with its price this week.

Tactically, the December contract is not likely to stay defensive for the rest of its tenure. Its challenge is to retest the 950 barrier. Barring the noises which may appear in the market, its medium-term target may eventually see it moving higher to test its resistance.

Technical readings

The Relative Strength closed at the neutral region.

The Commodity Channel Index closed at the neutral territory. The daily MACD indicator turned positive with the faster average above the slower.

bernard@tactician.com.my

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