Technical Analysis Review: FBMKLCI Review (19/5/2018)

It has been a week since Malaysia's 14th General Election. We have witnessed the fall of a government that has ruled Malaysia for about 61 years. Lets us see how has the market has fared.

From my previous review on April 21, 2018, I expected a bullish market leading to the general election. But I noted that if the market were to break below 1,880 points, this would indicate an immediate change in market sentiment from bullish to bearish, and this would lead to a decline to around 1,810 points. Do check out my previous review in this LINK. The FBMKLCI broke below 1,880 points on April 24, 2018, and proceeded to tread lower in the following weeks.

Looking at the FBMKLCI in Chart 1 below, we can see that the bourse made a "false breakout" from a horizontal trend channel on April 20, 2018. The bourse was closed on May 9 for the general elections, and on May 10 and 11 after Pakatan Harapan, the new ruling coalition, gained a simple majority in the Parliament. The bourse opened at 1,814 points on May 14, 2018, drifted to its intra-day low at 1,797 points, and finally closed at 1,850 points. Note that the intra-day low on May 14, created a strong support level at around 1,797 points as the market rebounded strongly by 79 points from its low of 1,797 points to its high of 1,876 points. This indicates strong investors' sentiments toward the country's economic prospects in general, and the stock markets in particular. 

Chart 1: FBMKLCI , April 19, 2018

So where is the FBMKLCI heading now?

Judging by the price action and the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) indicators, there seems to be some uncertainty in the market. The evidence of uncertainty in the market is indicated by the lower highs on both the MACD and RSI indicators relative to its price action (see the lower sloping trendline in Black drawn on the chart), which is technically known as a Bearish Divergence. On top of that, the bourse is still trading in a horizontal trend channel. I would think that its major hurdle would be the resistance zone between 1,880 to 1,900.

It is anticipated that the new government would be an agent of positive change in terms of better governance, a clean up of corrupt practices by the previous regime, and will pave the way for a more transparent and open society. This is the collective desire of the Malaysian voters.

The business community is watching the new government's actions very closely as its populist policies to abolish the Goods and Services Tax and to implement a targeted fuel subsidy plan are viewed as a credit negative to the country's economic outlook if there are no adjustment measures. Therefore, the reform agenda on accountability and governance would be the priority of the new government to gain market confidence. 

Looking at the technical chart of FBMKLCI, I have noted a few key resistance and support levels that investors should take note of:

Key Resistance Levels: 1,880 - 1,900
Key Support Levels: 

S1: 1,850
S2: 1,835
S3: 1,800

Final Thoughts

As an investor, I would take note of the uncertainty in the main bourse and the key support and resistance levels and will tread with care. If the FBMKLCI were to break above 1,880 points for a sustained period, this would indicate bullish sentiment in the market. As this is the first time the country has experienced a change in government, undoubtedly there would be an air of uncertainty among the business community. The peoples' hopes now rest in the hands of the new ruling coalition, hopeful in its reform agenda.

If you like my posts and this blog please SUBSCRIBE in the link above or follow me on Google+ !!!    THANKS