FKLI & FCPO - 13 July 2012

FKLI: RSI Overbought

Selling has finally returned, after 10 straight days of higher closes. As mentioned yesterday, it appears that the two-year daily RSI overbought level is again acting as a resistance. Weakness was marked by a close below Wednesday’s low and on a black candle. However, though yesterday’s move could be negative for the two-month rally, more negative signals are needed to confirm the weakness. The index is still comfortably above both the 50-day MAV line and the rising 200-day MAV line, supported by the longer-term positive “Golden Cross” that emerged in February.

Yesterday’s candle suggests a lower price for today and thus, the index has to stay above the support level of 1,623 pts to keep the two-month rally going. Resistance is now at the afternoon session’s high of 1,631 pts then followed by 1,640 pts, just above yesterday’s high. Again, further selling can then be reasonably expected at every 10-pt interval. However, continued trade below 1,623 could lead to a correction of the two-month rebound. Supports are at Monday’s low of a 1,614-pt support level and 5 July’s low of 1,610 pts. Stronger support remains just above the 1,600-pt psychological level, at last week’s low of 1,602.50 pts.

FCPO: Testing Psychological RM3,000

The violation of the RM3,100 support level proved to be disastrous for the commodity as it dropped further yesterday. It even tested the psychological RM3,000 support level and weakness was marked by the opening gap down below the RM3,050 support level. This extends the selling that was first indicated by 6 July’s black candle as well as the continuation of a series of lower highs, where the recent high of RM3,182 is below that of May’s high of RM3,193. The commodity is also below both the 50-day and 200-day MAV lines, reinforced by the longer-term negative indication of the “Death Cross” that also emerged two weeks ago.

Thus, the commodity is expected to trade lower and a firm downward bias should not see it back above RM3,050, which has now turned into a resistance. RM3,050 was the gap of both yesterday and 2 July, and the level also kept prices low in late June. Support is at RM2,992, which withstood multiple tests two weeks back, and the commodity has to close below this level to keep the week-long downward bias going. Further support is at RM2,970, the gap low of 22 June and also the 62% retracement of the recent month-long rally. A failure to close below RM2,992 could see a return in buying but this is only confirmed on a close back above RM3,100, the 76% retracement of the late May-early June decline and 38% of the Apr-June decline. Further resistance is at RM3,150, where the 200-day MAV line currently lies.

Source: OSK