ZLBT Chats

Tuesday, April 7, 2009

The overboughtness of KLCI

Caution advised on upcoming correction
Since reaching its recent bottom (836.51) at the support level of 835 on the 12th of March, the KLCI has rallied 87 points or 10.4% in just 27 days. It would be an understatement to say that the KLCI is now overbought.

RSI at levels last seen since the last big bull rally
The 14 day RSI of the KLCI shows a reading of 85% which signifies that the KLCI is currently in the overbought zone. It’s the highest RSI reading of the KLCI since the last global rally in equities. This means that the KLCI has not been this overbought since its peak during the last rally on the 14th of January.

Though the possibility of the KLCI extending its overbought status to higher levels cannot be discounted, it now pays more to err on the side of caution and to look out for upcoming corrections in the KLCI.
Strategy : Maintain positive stance, but caution on corrections
We still maintain our positive view of the KLCI. However, with the KLCI failing to break our critical resistance of 926 yesterday, and with the small 41 point overnight correction in the Dow, we would like to urge caution among traders to expect corrections coming our way.

We advise traders to begin taking some profits in the KLCI and to use the upcoming corrections to make entries into trading stocks in weakness.

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