Bursa Malaysia Market Breadth Divergence

Market breadth analysis provides a glimpse into how investors feel about overall markets in general.

This week we analyse market breadth for Bursa Malaysia. The most commonly used index for Bursa Malaysia is the FTSE Bursa Malaysia KLCI Index. We employ this in our analysis.

The FTSE Bursa Malaysia KLCI Index comprises of the largest 30 companies by full market capitalisation on Bursa Malaysia’s Main Board. When launched, on July 6 2009 it replaced the Bursa Malaysia KLCI Index starting at the closing value of the KLCI Index on July 3 2009, also inheriting the full history of the KLCI Index.

Similar to earlier analysis on other key Asia Pacific markets, we would like to know how many members in the FTSE Bursa Malaysia KLCI Index are trading above it’s own 200 days moving average. The moving average is largely accepted to be representative of the long term trend of the stock. The percentage of the index members trading above the 200 days moving average gives us an idea how the market is trading.

We plot the percentage of members above 200 days moving average alongside the FTSE Bursa Malaysia KLCI Index in Chart 1 and 2.

Chart 1KLCI Market Breadth 10 Years (Nov 2012)

More than 80% of the index members are in bullish trend in 2009 and 2010 while we see the index value rise from around 1100 to around 1550. Notice that from mid 2011 to mid 2012 the movement of the index has been in line with the percentage of members above the 200 days moving average. For the past few months, we notice that the index continues to inch higher but the percentage of members trading above the 200 days moving average does not appear to support this bullish index movement. Chart 2 zooms in to the past 1 year. We would like to see some improvement in market sentiment to increase the probability of a sustained bull run in Malaysia Stocks.

Chart 2KLCI Market Breadth 1 Years (Nov 2012)

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