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KLCI May Decline Further
Malaysia Perspective | 19 November 2008

Kuala Lumpur Composite Index (KLCI): Strong downtrend

The KLCI easily broke through the immediate support of 950 points and plunged to its lowest low since June 2004 at 801 points before rebounding immediately. Despite this, the Malaysian market was less volatile than other equity markets.

The government gave repeatedly assurance that the Malaysian financial market’s exposure to the current financial crisis was minimal, but investors remained concerned. Inflation did not decline despite lower commodity prices. A weakening ringgit also added more weight to concerns.
The downtrend remains resilient and currently, the KLCI is way below the average at 863.61 points, while the short-term 30-day average is at 950 points. Momentum indicators show a strong downtrend momentum, so the KLCI may decline further.

If the KLCI falls below the 801-point low, it may find the next major support level at 600 points. The current immediate resistance is 950 points. The current immediate resistance is 950 points and if the KLCI can break and stay above this, a sideways correction is expected.

Singapore FTSE Straits Times Index (FTSTI): Short rally expected
The Singapore market was very volatile. Banking and finance stocks faced heavy selling pressure. Singapore is technically in a recession. Despite being heavily oversold technically, the FTSTI was sent to an unexpected low of 1473.77 points recently, its lowest since Aug 2003 after easily breaking the support level of 2100 points. It rebounded sharply to close at 1794.20 points that same week. It was a rollercoaster month for Singapore investors.

The STI is still highly oversold because the short-term 30-day average is at 2100 points. The weekly chart formed a bullish candlestick reversal pattern called piercing lines. This indicates a short rally can be expected from this rebound.
Furthermore, the RSI indicator shows a bullish divergence, which means the downtrend is rather weak on the daily chart. As the downward trend is still strong in the longer term, the rally may be short with a resistance at 2100 points. The 1473-point low is the immediate support level, while a stronger support can only be found at 1200 points.

Chart 1: Weekly KLCI (left) and FTSTI (right) chart as at Oct 31, 2008
Chart 1: Weekly KLCI (left) and FTSTI (right) chart as at Oct 31, 2008

Hong Kong Hang Seng Index (HSI): May rally briefly upwards
It was a very volatile month for the Hong Kong equity market. On Oct 27, the HSI was at 11,015.84, which was one-third of its peak of 32,000 points just a year ago. However, a strong rebound followed and the index is currently at 13,968.67 points.
The Hong Kong market was highly affected by the performance of the US and China markets. The Shanghai Stock Exchange Composite is currently three-and-a-half times lower than its peak last year.
The HSI short-term average is currently at 15,950 points. The HSI is still oversold. A bullish divergence is formed on the daily chart by the RSI indicator, which means the short-term downtrend momentum is weak.
The rebound formed this week may form a short upward rally. However, it may face heavy resistance, the first of which is the short-term average. The support level is at 11,000 points.

Dow Jones Industrial Average (DJI): May remain sideways
It was a price tsunami in the US equity market. The average range jumped to 800 points this month compared to the previous month. The DJI broke the immediate support level at 10,000 points and found a strong support at 8000 points, which was tested three times before it rebounded to close at 9325 points today.
Americans are now watching how the US$7b will be used to support ailing financial institutions with mixed sentiments. The presidential election on Nov 5 is also another important date for financial investors.
The DJI is near the short-term 30-day average while the longer-term average is at 10,500 points. Investors may be more cautious in Nov and the results of the election may set a new course for the equity market. The DJI may stay sideways while investors and traders wait to see what the new President can do to revive and restructure the financial markets.
The trading range is expected to be between 8000 and 10,000 points.

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