Weekly Technicals KLCI, DJIA and Malaysian Ringgit

Potential test of next key KLCI supports at 835 and 801
Support: 801 to 835 >>> Resistance: 858 to 889

Strategy: The KLCI plunged last week in low volume trading, taking cue from the weaker DJIA and SP500 Index. The local index closed at 858.22, losing 32.45 points (-3.64%) on a WoW basis. Local finance issues also lost ground, as AIG (US) reported a massive USD61.7b loss, HSBC (UK) reported a 70% plunge in annual profits and the UK government took a controlling stake in Lloyds Bank (UK).

The weaker support area for the KLCI is located at the 801 to 835-zone. The firmer resistance areas of 858 and 889 will see some heavy profit taking activities. The market had made an early Jan ’09 rebound to 936.63 for the KLCI, but had fallen below its Rising Wedge trend-line just last week – implying an imminent re-visit of the Oct ’08 low of 801.27 in the near-term.
For the Elliott Wave picture, the KLCI had traced a broad Wave 4C consolidation phase to the 936.63 high. Further price weakness and selling will take the KLCI below and towards the 801.27 low soon. With the Rising Wedge pattern last week, we believe that the 2009 high could have been
sighted at 936.63 (Jan ’09) and the local index could head south for the remainder of the year on the backdrop of weaker local and global economic fundamentals, as well as a poorer tone for world equity markets. We prefer to be in a larger portion of cash rather equity for now.

The US markets could remain under further selling pressure this week, as there would be potentially more poor economic news to contend with (like GM potentially falling into bankruptcy).

Recent weakness below the 7,000-mark will signal a move to our preferred downside target of 6,426.02 (and lower) for the DJIA. World Bank estimates that the global economy would shrink for the first time since WW2, and the fact that trade is to fall to its lowest point in 2009 in 80 years would not aid investor sentiment. Investors on the local bourse should continue to adopt a “Selling on Rallies” strategy. Poorer local corporate earnings, political and economic uncertainties and technical factors (break of its Rising Wedge support trend-line) would weigh down the KLCI too.
Dow Jones Industrial Average
Technical Ratings: DJIA to plunge below 6,426
DJIA will head below 6,426 very soon!

Support: 5,833 – 6,469

Resistance: 6,547 - 7,179

RSI: 26.41-level. Signal line is moving lower. Stochastic: 4.58-level.

Heed this negative sell signal.

MACD: -811.0-level. Heed the MACD buy signal too. MA: Well below the key weekly MAs.

Strategy: The DJIA Index plunged last week and lost 6.17% on a WoW basis, or 435.99 points in total. It settled at 6,626.94. We expect it to trade towards the stipulated support levels with an aggressive downward bias in a descending Wave 5 move. Selling on rallies will persist as the DJIA had sustained price breaks of its major supports (of 7,197.49 and 7,449.38) recently would mean a very long-term bear market and a move to our initial downside targets of 5,820.64 and 6,426.02 for this major US Index.

Economic numbers would bear out our negative view and worries about financial stocks and GM would cause a further DJIA drift downwards.

Malaysian Ringgit
Strategy: The Ringgit remained weaker against the US Dollar last week. Recent news that the local economy expanded at the slowest pace in 7 years, declining exports, rising 5 and 10-year Government bond yields and BNM cutting interest rates, caused the local currency’s fall to further lows against the Greenback. The Ringgit remains slightly weaker against the USD – albeit with less conviction (due to the bearish divergent technical signals). Nevertheless, we believe that there could be potential for the USD to gain towards our upside targets of 3.85 and 3.94 against the MYR.

Technical Ratings: USD to creep up against MYR

• US Dollar may touch RM3.85 and RM3.94
• Support: RM3.6500 - RM3.7170
• Resistance: RM3.7350 - RM3.7600
• RSI: 70.96-level. Indicator rose further, with bearish
  divergent signals.
• Stochastic: 97.30-level. Into very overbought zone, with
  bearish divergent signals
• MACD: 0.064-level.
• The MACD issued a buy signal.
• MA: Prices are above the 18 and 40 WMA for a further USD rise.