Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on October 31, 2018

The bearish trend extended last week after an effort to support the market failed. The bearish global market performances influenced market sentiment. Furthermore, the weaker ringgit fell to its weakest level in 11 months against the US dollar. The FBM KLCI fell 2.8% in a week to close at 1,683.06 points last Friday. The market has not moved much this week and yesterday the index closed at 1,685.94 points.

The bearish momentum started to gain traction last week. Trading volume was almost unchanged but the index declined significantly. This indicated a lack of support. The average daily trading volume increased to 2.1 billion from two billion shares in the previous week but the average daily trading value rose.

Foreign institutions continued to be net sellers on weaker ringgit and the main net buyers were local retail investors. Net sell from foreign institutions was RM310 million while net buys from local institutions and local retail investors were RM66 million and RM244 million respectively.

For the KLCI, only two out of 30 counters closed higher last week. The two gainers were MISC Bhd (+4% in a week to RM5.96) and KLCC Properties Bhd (+1.5% to RM7.62). The top three decliners were Sime Darby Bhd (-16% to RM2.10), Telekom Malaysia Bhd (-10.8% to RM2.15), and CIMB Group Holdings Bhd (-7% to RM5.62).

Global markets were in a sea of red last week, except for China. In Asia, Japan took the lead with a 6% decline in the Nikkei 225 index, the lowest in six months. China’s Shanghai Stock Exchange Composite Index rebounded to close 1.9% higher after weeks of declines. Markets in Europe including the UK declined. The US Dow Jones Industrial Average finally followed the rest of the global market indices.

The US dollar continued to strengthen against major currencies. The US Dollar Index, which measures the US dollar against major currencies, increased to 96.3 points last Friday from 95.6 points the week before. The ringgit weakened slightly against the US dollar at RM4.17 to a US dollar compared with RM4.16 in the previous week.

Gold price stayed firm in the past one week as bearish global market performances have pushed more interest to gold. Price of gold on the commodity exchange  rose 0.4% in a week to US$1,235.40 (RM5,164) an ounce. Brent crude oil, however, fell 2.9% to US$77.73 a barrel. In the local market, crude palm oil futures fell 3.4% to RM2,147 per tonne.

The KLCI is currently testing the support level of 1,683 points, the level where the index rebounded off two weeks ago. The market faced resistance when the index failed to break above 1,742 points.

Trend-wise, the KLCI is strongly bearish below both the short- and long-term 30- and 200-day moving averages. Furthermore, the index remained below the Ichimoku Cloud indicator and the Cloud is declining and expanding moving forward. Based on the Cloud, the market is expected to rebound in a week’s time, when the Cloud is at its thinnest.

Momentum indicators continued to fall to new lows after failing to turn bullish two weeks ago. Momentum indicators like the Relative Strength Index and Momentum Oscillator are currently at oversold levels. However, in a strong bearish trend, these indicators should remain oversold. Furthermore, the moving average convergence divergence indicator remained below its moving average or trigger line. These indicators show that the bearish trend momentum is strengthening.

The index has fallen 100 points in less than a month after breaking below the then support level of 1,780 points. It is now at a support level of 1,680 points. With the strong bearish momentum, the FKLI is expected to break below the support level and test the next support level of 1,655 points. If it fails to be supported above this level, the index may decline to the following support level of 1,610 points. The trend is expected to be bearish if it stays below 1,710 points.


The above commentary is solely used for educational purposes and is the contributor’s point of view using technical analysis. The commentary should not be construed as an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.

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