The Week Ahead
The daily slow stochastics indicator for the KLCI reissued a buy signal at the overbought zone
early last week (Chart 1), confirming the buy signal from the oversold region on the weekly
indicator. The 14-day Relative Strength Index (RSI) indicator climbed higher to above the 60-
point mark, while the 14-week RSI listed a positive reading just above 50.
Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator’s signal
line extended higher above the zero line to reinforce a bullish trend signal, while the weekly
MACD signal line continued hooking up to suggest strengthening upward momentum (Chart
2). The 14-day Directional Movement Index (DMI) trend indicator will see the -DI line
crossing back below the +DI line to trigger a buy signal on further strength, but the ADX line
continued inching lower, confirming a trendless market.
Given the further improvement on momentum and trend indicators for the KLCI, the local
stock market should show upside resilience this week, even as short-term momentum
becomes more overbought. As such, profit-taking dips are likely to be shallow as increasingly
investors should be more confident to return and bargain stocks, especially those in the
construction, property and oil & gas sectors which have suffered heavy losses in recent
weeks. Moreover, improvement on the euro-zone debt situation following the decisive action
taken by EU leaders to boost its rescue fund to 1 trillion euros as bondholders agreed to a
relatively mild 50% haircut on Greek debt, as well as much stronger-than-expected US and
Chinese economic data, should combine to boost sentiment further.
On the index, immediate resistance comes from 1,488, the 61.8% Fibonacci Retracement (FR)
of the sell-off from the 1,597 record high of 11 July to the recent pivot low of 1,310 on 26 Sept
(Chart 3), matching last Friday’s high. A breakout going forward would see stronger
resistance from the 100-day and 200-day moving averages at 1,495 and 1,512 respectively,
being challenged, while the 76.4%FR at 1,529 would act as a more formidable upside barrier.
Immediate support on profit-taking dips will be at 1,454, the 50%FR, with better retracement
support at 1,420, the 38.2%FR, followed by 1,400 and then 1,378, the 23.6%FR.