FKLI & FCPO : 27 July 2012

FKLI: Selling Returns

The bullish candle formed on Wednesday surprisingly failed to push the index higher. Instead, the index fell and registered its lowest close this week. It is also back below last week’s low of a 1,630-pt support level. This shows that Wednesday’s “Bullish Engulfing” was merely a blip and the negative bias arising from the failed test of the 1,650-pt resistance level still dominates. Nonetheless, the weakness is within the backdrop of a two-month rally. The index is 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.

The index is likely to trade lower today. Firm selling pressure should not see the index closing back above 1,630 pts. Immediate support is at 12 July’s low of 1,623 pts, where the index stopped short of violating yesterday. This is followed by 9 July’s low of 1,614 pts and 5 July’s low of 1,610 pts. Stronger support remains just above the 1,600-pt psychological level, at the three-week low of 1,602.50 pts. A close back above 1,630 pts possibly see the return of buying but it requires a break of the psychological 1,650 pts (tested twice last week) to cancel the current negative bias. Resistance is also expected at Monday’s high of 1,645 pts.

FCPO: RM2,900 Support Level Broken

The “Bullish Engulfing” candle that closed above the RM2,950 resistance level on Wednesday proved insufficient to turn the downward movement that began on 6 July. The commodity closed feebly at the day’s low, below the strong RM2,900 support level. Thus, the downtrend since late Mar, with the latest lower highs at RM3,193 and RM3,182, remains intact. It is below the declining 50-day MAV line and the 200-day MAV lines, reinforced by the longer-term negative indication of the “Death Cross” that emerged early in the month.

The commodity’s downward move should continue, though the extent of the downtrend may be limited due to the crowded support level just below. Support is expected at the Oct 2011 covered gap of RM2,820 and then at the psychological RM2,800. Stronger support is expected at the Oct 2011 low of RM2,750. Minor support is also expected at RM2,850. The broken supports of RM2,900 and RM2,950 have now turned into resistance. Only on a close above RM2,950 can any buying be taken seriously. Further resistance is at RM2,970, the psychological RM3,000 and then the broken supports of RM3,050 and RM3,100 – the 76% retracement of the late May-early June decline and 38% of the Apr-June decline.

Source: OSK