THE Kuala Lumpur Composite Index (KLCI) futures spot month contract on Bursa Malaysia Derivatives closed at 938 with an open interest of 24,198 contracts last Friday.

The October contract plunged more than 80 points last week as the market bulldozed its way below the 1,000 level on bearish momentum. The severe correction has laid to rest this psychological support level after the market battled for more than a month to stay above it. It was a week of highly volatile trading which culminated in the futures ending at the low point.

Will there be further corrections or will there be a rebound? This is the million-ringgit question. With a weaker closing last Friday on major bourses, any upside in the cash market today is likely to be limited.

The bulls' argument for a rebound taking place this week say that the weekly trends have broken below key oversold territory resulting from continuous selldown activities. Key indicators such as the Relative Strength Index (RSI), the Moving Average Clonvergence Divergence (MACD) and the Commodity Channel Index (CCI) have begun to slip into oversold levels.

Technically besides the broken oversold lines, there isn't any signal which suggests a trend reversal is around the corner. For this reason, chances of a dead cat bounce taking place again are much higher.

With the 900 line just a breath away, the momentum may be drawn to this support before a committed rebound takes place.

Tactically, this week the spot contract will continue to gyrate but within a wider band. With the presence of a runaway gap on its daily chart, this may be taken by some traders as a clear indication that the October contract will rise to close this 35-point gap found in between 985 and 950.

Contrarians who do not see the need for this gap to be closed argue that the spot contract may continue to trace out the declining primary trend to the support at 900 before recovering.

With more uncertainty ahead the futures may choose to consolidate within 910 to 950.

Technical readings

The RSI closed at the oversold region.

The CCI indicator closed at the oversold territory.

The MACD indicator remains in the negative territory with the faster average above the slower.

bernard@tactician.com.my.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.

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