Index Futures: Prices plunge on heavy selling

BMD Index Futures: A weekly column by G.M. Teoh 

LAST CLOSE (March 2): 1,144.0 points, down 138.0 points (10.76%) from the previous week. Week’s high: 1,293.0 points. Week’s low: 1,102.0 points. 

The Bursa Malaysia Derivatives’ Kuala Lumpur Composite Index (KLCI) futures’ largest winning streak in nine months came to an end as the result of an abrupt sell-off triggered by panic selling and hedge-related activities following the Shanghai meltdown. The sell-off was very broad. 

It was a volatile and wide-swing trading week as prices sank and almost wiped off all the excessive gains of 2007. Month-end rollover activities and programme selling caused near-panic selling and pressured the March futures prices to trade at a 50-point discount to the underlying cash KLCI at one stage.  

The March futures prices declined from an intra-week and historical high of 1,293.0 points and dropped to an intra-week low of 1,102 points before recovering slightly to close the week sharply lower at 1,144 points, down 138.0 points or 10.76% from the week before. Total volume for the week surged to 148,870 contracts from to 71,200 contracts a week ago.  

At this stage, no one knows how big this decline will be. It is going to be a choppy, erratic and very volatile market in the coming sessions and traders will just have to learn how to deal with it. The market is now all about emotions and perceptions, and it is very tough to draw too many technical conclusions right away.  

Basically, the index is still in a bearish phase and renewed selling pressure could possibly induce further instability. There will be a few normal, oversold, knee-jerk bounces this week and the prospects of the resulting gains being sustained are not favourable at this juncture as the market has yet to reach a meaningful correctional low. Some chartists would interpret the recovery of half of any decline as an exit point and a good time to sell. 

It is amazing how fast market sentiment changes. The technical indicators are suggesting the 1,050.0-1,000 point levels as likely areas where the market could trade to in its search for a fresh sell-off low.  

The weekly candlestick chart ended the week bearish. Last week’s large black candle showed that the momentum had shifted from bullish to bearish. 

The bearishness of the current technical indicators suggests that we will have periodic rallies, but it does not necessarily imply something more sustainable. 

Stochastic indicator triggered the sell signal on Feb 23 and remained bearish for the immediate-term trend on Friday’s close. The weekly Money Flow Index (MFI) headed south and departed from the overbought territory to settle the week at 68.89 points. MFI continues to show that the market is overbought. 

The 3- and 7-week exponentially smoothed moving average price lines (ESA lines) ended in strong negative convergence and confirmed that the bullish trend was over. The 9-week Relative Strength Index (RSI) (not shown in the chart) slumped to neutral territory at 51.06 points and indicated that the underlying strength of the market was bearish.

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