19/06/06 : Technical View : KLCI : A Capitulation Bottom ?
This is an article courtesy of OSK Research Sdn. Bhd.
By : OSK Research Sdn. Bhd published in OSK188.com on – 19 Jun, 2006
It was Fed Chairman Bernanke’s cautious comment last Monday which triggered panic selling activities across the stock markets in the world. At that time, the investment community was informed that the anticipated moderation of economic growth in U.S seems to be under way and core inflation has reached a level that, if sustained, would be at or above his preferred range.
Slightly more than a week later, Bernanke’s commentary is a different one. This time he reassures investors the impact of higher energy prices will probably be “manageable” and that economy remains resilient despite the drag of higher oil. It does not matter that the tone of speech has changed considerably within a short period of time, the whole world still bought the news and equity markets staged a sharp rebound.
As for the immediate technical outlook of KLCI, there are still no real signs of a market capitulation. A single day rally will not change the trend. A clear indication is that the FKLI remains stuck within an obvious downtrend channel. The FKLI will be closely watched by us in the next few sessions to determine if the KLCI has already hit its rock bottom. Even if the 885 pts level has provided a new base for the market, whether the key index could make its way back into above the mid-term uptrend line is another issue. It will be a very tough resistance level to be challenged in the future. We are also sceptical if last Friday’s rebound signifies the end of a breakdown from the more than 2-year old of uptrend line as the market has so far retraced only about 4% from the mid-term uptrend line. Hence, it is not the time for the bulls to relax yet but this bounce definitely lets them breathe again.
For the aggressive pundits, if they are already pounding the table about how undervalued everything is and what a wonderful dip-buying opportunity, long positions could be established at above the 885 pts level but peg a tight cut-loss point at below the 880 pts level. If not, it is better to follow the safer strategy of waiting for further confirmations.
From the current level, look for the 900 pts level as the immediate resistance followed by the 910 pts level and the 920 pts level. To the downside, the 885-880 pts area is still the immediate support for the market. If the support area is taken out, then look for the 860 pts level to offer the next support.