KLCI futures: Early-week advance likely

THE KLCI futures January contract on Bursa Malaysia Derivatives Bhd closed at 897 with an open interest of 19,682 contracts on Friday.

The current month contract began trading with renewed vigour, ending the week on a positive note despite thinner volume. There was more buying interest as traders who were initially disappointed with weak window-dressing activities returned after a recovery in the Kuala Lumpur Composite Index last week.

This week we expect profit-taking to take place should the January contract rise above the resistance line at 900. Based on the momentum indicators, the technical rebound last week left behind a trail of broken lines at the overbought territory signalling the vulnerability of the contract should it continue to push higher.

The Relative Strength Index (RSI) and the Commodity Channel Index (CCI) have both cracked their overhead lines. The Bollinger Band reflects similar results as it move closer to its upper boundary line.

While the daily trend signal is still pointing to a correction, the weekly charts and indicators may be signalling a trend reversal. The weekly indicators have been supportive as they begin to trend above the overbought and gradually climb. This may be the beginning of a longer trend recovery.

Tactically we may see the January contract moving higher early this week. This may open the door for shortists to dominate at the 910 resistance line. At this level its momentum would be at the overbought, leading to some technical correction. The shorter and the longer term trend may run in different directions but the underlying momentum may support a more general broad-based recovery over the next three months.

Technical reports

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

The daily RSI closed at the overbought.

The daily CCI finished at the overbought.

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.