Market Outlook as at May 7, 2010

FBM-KLCI hit a low of 1315.63 early this morning. It closed at 1324.91 at the end of the morning session. We can see from Chart 1 that FBM-KLCI has a good support at its 50-day SMA line. In the past one year, this SMA line has tested numerous times and the only occasion when it was violated was in late January this year. I have highlighted that technical breakout below. The 50-day SMA line support is now at 1322.


Chart 1: FBM-KLCI's daily chart as at May 6, 2010 (Source: Tradesignum)

If we looked back to bull rally of 2006-7, we can also see how strong is the support of the 10-week SMA line (which is equivalent to the 50-day SMA line). On the 3 occasions when it was violated (denoted as X, Y & Z), the market suffered sharp selldown. See Chart 2 below.


Chart 2: FBM-KLCI's weekly chart as at May 6, 2010 (Source: Tradesignum)

From the above, it is important that the FBM-KLCI stays above the 50-day SMA line or 10-week SMA line at 1322-24. A break below this level could easily send the market to the psychological 1300 level (which almost coinciding with the support of 100-day SMA line, presently at 1297) and even the 200-day SMA line, presently at 1256.