Sentiment in KLCI futures turns slightly bearish

THE Kuala Lumpur Composite Index (KLCI) futures spot month contract on Bursa Malaysia Derivatives closed lower at 878 with an open interest of 20,763 contracts last week.

The February contract failed to stay above the 900 level after touching a high of 914, falling back to the 800 domain. KLCI futures failed to sustain their bullish momentum last week as a result of slower buying interest and the stumbling stock market.

Bearish interest pushed the spot contract below primary support at 900 but it managed to stay around the 880 line. This slide was precipitated by a breach of the upper Bollinger band last Monday.

Given the 10-point discount to the cash index as at last Friday, it would not be surprising if the futures market remains volatile this week. Having seen the index futures falling from the high of 914 recorded early this month, some traders are still "net buyers" in the market. On this account should the spot contract push itself higher, be prepared for some "stickiness" in trades at certain resistance levels.

Technically, the correction was better reflected in the daily technical tools than in the weekly ones.

The Relative Strength Index (RSI) and the Commodity Channel Index (CCI) have formed a hook-down angle at the tail-end of these two signals, highlighting possible further price erosion. As the CCI has yet to pull out completely from neutral territory, the market could encounter some "disturbances" before forging ahead to test its next support line.

Tactically, we may see a more defensive February contract for the remaining period of its life. As it enters its last seven trading days beginning this week, the contract may trade closer to the underlying cash index. Its reluctance to stray far from the composite index may narrow the spread between these two indices. This encourages the KLCI futures spot contract to extend its recovery attempt should the cash index stay flat.

On this note, on the balance of technical signals and "technicality" of the February contract, trading is likely to remain sideways with support and resistance at 880 and 910 respectively.

Technical reports

The Moving Average Convergence Divergence (MACD) turned positive with the faster below the signal line. Both lines remained in the positive region.

The daily RSI closed at the neutral. The daily CCI finished at the oversoldl.

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.