Tuesday, September 21, 2010

KLCI may exceed 1,500 mark ???!!

Malaysia's benchmark stock index is likely to surpass the psychological 1,500 mark, technical analysts say.

But they cautioned that the extreme overbought relative strength of the index (RSI) could signal a pullback.

The RSI for benchmark index FBM KLCI last Tuesday was hovering around the 82 level, indicating that the market was heading towards an extreme overbought position.

An RSI reading of below 35 indicates that the market has been oversold, while a reading of 75 indicates that the market has reached the overbought level.

Although the RSI is used to gauge the market in an extreme bearish or bullish market, its readings can sometimes become muted, both technical analysts and dealers said.

Mercury Securities technical analyst Teoh Chang Yeow said while RSI is logical from a text book case, the market itself acts beyond logic.

Teoh added that the RSI is not the best indicator for a trending market.

"It is up to the traders to interpret the market," he told Business Times.

He added that based on the momentum of the market, the benchmark index should test the 1,500-point barrier, and re-test the intra-day peak of 1,524.69 points recorded on January 14 2008.

At the January 14 intra-day peak, the FBM KLCI's RSI reading was 73.29, while on January 11 2008 when the all blue chip index closed at its summit of 1,516.22, its RSI was 78.03.

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