WEEKLY RECAP >>> DJIA, FBM KLCI and FKLI

SWINGING WEEK AHEAD The Dow Jones Industrial Average battled its way back above 10,000 this week, but the S&P 500 Index (SPX) found 1,100 a tougher challenge. The SPX hasn't finished a week above this round number since mid-May.

The headline is that the Dow Jones Industrial Average regained the 10,000 level, thanks largely to a 273-point rally on Thursday, to record its first weekly advance in four weeks. Traders were still concerned about European debt issues, the Gulf oil spill, and the pace of the economic recovery, but for the time being at least, the correction that began in early May seemed to stabilize, if not reverse course.

In retro, Federal Reserve Chairman Ben Bernanke tried his best to boost spirits Monday night, telling an interviewer that he doesn't expect a double-dip recession. "So far the news is pretty good," said the Fed chief. "My best guess is that we'll have a continued recovery [but] it won't feel terrific," citing the weak employment picture.

The weak technical backdrop did indeed favor the bears last week, but the sentiment backdrop was ripe for a short-covering rally that might quickly unnerve them. Last week's price action was representative of this conclusion. Monday's trading was a continuation of the prior Friday's weakness, and Tuesday was pretty much uneventful until a surge higher in the last two hours of trading. Wednesday saw a gap higher, followed by more strength into the lunch hour, but afternoon weakness sent the S&P 500 Index (SPX) 22 points lower into the close. But Thursday saw another sharp gap higher that lasted into the closing bell. Finally, Friday's action began with a gap lower and stocks trading in the red until the last half-hour of trading, at which point they rallied to close in positive territory. The end result has been volatile movement within the 1,040 – 1,100 range, and overnight holding risk continues to be high.

The CBOE Market Volatility Index (VIX – 28.79) closed below 30 last week, the first weekly close below this level since the meteoric rise above 30 last month. Moreover, the VIX is below the SPX's 20-day historical volatility of 30.48, suggesting volatility is headed lower.

The technical backdrop, however, remains mixed.

Composite Index 11/06/2010

As indicated by A, the KLCI tested the 13-day EMA on Friday, but failed to break out. This suggests that despite the strong rebound, the KLCI failed to break away from this downtrend.
Meanwhile, the Bollinger Bands contracted 40%, suggesting that the KLCI is indeed consolidating, while preparing for a new movement. The direction of the new movement shall be revealed once the Bollinger Bands re-expands.
As indicated by B, total market volume fell 31.6%, with volume further below the 40-day VMA level. This shows that the market is indeed quiet. When the market volume is low, we assume that the buying interests is low, thus insufficient to off set the selling pressure.
As indicated by C, the MACD histogram might be forming a Rounding Top, thus implying that the short term movement of the KLCI could be losing strength. If the MACD histogram should continue falling, the KLCI is expected to weakening, and the weakening short term movement is likely to carry on until the MACD histogram should form a Rounding Bottom.
In conclusion, the KLCI failed to break out from its downtrend, as it is still resisted by the 14, 21, 31 EMA. Meanwhile, the resistance for the KLCI is still at 1297 to 1300 psychological level while the support remains at 1284, which is the 38.2% Fibonacci Retracement line.

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ZLBT wishes all visitors a prosperous week ahead;

Footie punting inclusive :D