THE market went into a correction as I had expected last week after seven days of gains. Despite the bullish performances in the Asian markets, the bearish market sentiment in the local market was led by the weakening ringgit and declining crude oil prices that dragged the prices of index-linked oil and gas companies down.
The FBM KLCI declined 1.2% in a week to 1,825.11 points yesterday. The weaker ringgit put off foreign institutions which were net buyers two weeks ago after weeks of being net sellers on Bursa Malaysia.
Trading volume was higher in the past one week and this indicates selling pressure. Average daily trading volume in the past week was only 2.6 billion shares compared with 2.2 billion shares in the previous week while the average daily trading value was the same as the previous week at RM2.3 billion. The trading has shifted from higher priced counters to lower priced counters and this indicates the return of the retail market. Total market valuation fell RM22 billion from last week to RM1,749 billion.
Foreign institutions were the net sellers last week (Monday to Friday) at RM29.7 million. Local institutions’ net selling was RM3.4 million while local retail was the only net buyers at RM33.1 million. In the FBM KLCI, decliners out-paced gainers 4 to 1. Decliners in the index were led by IOI Properties Group Bhd (-7.3% from last week), SapuraKencana Petroleum Bhd (-5.5%) and Petronas Dagangan Bhd (-4.6%), and gainers were led by MISC Bhd (+9.8%), UMW Holdings Bhd (+3.1%) and Kuala Lumpur Kepong Bhd (+1.6%)
Asian markets were mixed with China and Japan leading the market again last week. China’s Shanghai Stock Exchange Composite rose 1.6% in a week to 2,470.60 points yesterday, near a three-year high. Japan’s Nikkei 225 extended another 1.5% gain in a week to its highest level in seven years at 17,124.11 points after increasing 10% two weeks ago. Singapore’s Straits Times Index increased only 0.2% in a week to 3,289.74 points. Hong Kong’s Hang Seng Index also declined 0.2% to 23,808.35 points.
Markets in the United States and Europe continue its bullish rally. On Monday, the US Dow Jones Industrial Average rose 1.4% in a week to another record close at 17,613.74 points. London’s FTSE100 Index increased 1% in a week to 6,611.25 points and Germany’s DAX rose 1.1% to 9,351.87 points. The US Dollar Index, that measures the US dollar against a basket of major currencies, rose from 87.41 points a week ago to 87.91 points, near four-year highs.
Commodities rebounded last Friday after a pullback in the US Dollar Index but was temporary as prices continued to slump on Monday as the US dollar gained back strength. Commodity Exchange gold declined 1.2% in a week to US$1,151.80 (RM3,852) an ounce after rebounding from an intraday low of US$1,140 last Wednesday, the lowest level in four-and-a-half years. Nymex WTI crude oil fell 1.3% in a week to US$77.18 per barrel, the lowest in three years. Crude palm oil futures on Bursa Malaysia pulled back for a correction and declined 1.9% in a week to RM2,262 per tonne. The ringgit was weaker against the US dollar at RM3.35 per dollar compared with RM3.33 a week ago.
The index failed to stay above the long-term 200-day moving average (MA) after breaking above it two weeks ago and also did not manage to overcome the Ichimoku Cloud indicator. After climbing above the short-term 30-day MA two weeks ago, the FBM KLCI has pulled back to this average. The index also fell below the 1,840 points resistance level that it broke two weeks ago.
Momentum indicators like the RSI fell back below their mid-levels. However, lagging momentum indicators like the MACD and Momentum Oscillator are still slightly above their mid-levels. The FBM KLCI has also pulled back to the middle band of the Bollinger Bands indicator after testing the top bands two weeks ago.
However, the index has found support at 1,824 points, the 38.2% Fibonacci retracement level of the bullish trend that started in mid-October. The retracement is a normal correction of a trend. The index may rebound at this level and if it does rebound, the index is expected to continue its bullish trend. However, there are no signs of reversal and this indicates that the bearish momentum is set to continue, and the FBM KLCI is set to test the next support level at 1,810 points, 50% retracement of the bullish trend. Furthermore, the indicators are indicating that the market trend is bearish. Immediate resistance is at 1,830 points.
Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [email protected]. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions.
This article first appeared in The Edge Financial Daily, on November 12, 2014.