This article first appeared in The Edge Financial Daily on May 16, 2018

A significant milestone in Malaysia’s history was achieved last week. The opposition political ally, Pakatan Harapan, led by the former prime minister of 22 years defeated Barisan Nasional (BN), which had been in power since Malaysia’s independence. The people have spoken; they wanted a change.

I have mentioned before that investors do not like uncertainty. With the change of a new government, we are moving into uncharted territory. The market was closed for three days last week, on the election day and two more days after Pakatan made a promise that there will be a two-day holiday if they win.

Looking back at this, I think it was a good move by Pakatan. Imagine how the market would react after this historical event. With the two-day public holiday, investors had more time to evaluate the current market environment and made decisions when the market opened on Monday.

The question that everyone wants to know is how the market is going to perform this week.

First of all, let’s take a look at the market performance last week. Last Tuesday, the benchmark FBM KLCI rebounded to close marginally higher at 1,846.51 points, compared with the previous Friday’s close at 1,841.83 points. Globally, markets closed higher last week.

When the market opened on Monday, the market started on a very bearish note and was extremely volatile as expected. The FBM KLCI made a 79.5-point swing. The index rebounded and closed higher. It took a breather yesterday and closed at 1,848.20 points.

The trading volume on Bursa Malaysia was higher as the market went on bargain hunting yesterday after a steep decline on Monday. Foreign institutions and local retailers were net sellers at RM505 million and RM114 million respectively. Gainers outpaced decliners 16 to 11.

Since 1994, the performance of the FBM KLCI has always been slightly flat a year after the general election, except for 2008, when the global economy was shaken by the US financial crisis, and 2013, when markets continued to be pumped with liquidity due to low interest rates.

Now, this is a year of uncharted territory and hence it will be quite difficult to determine the performance this time based on historical patterns.

However, there are common patterns that can be found. Firstly, the equity market normally turns into an uptrend in the intermediate term of three years after a one-year correction.

Secondly, the trading volume declines as market stays on the sidelines, waiting for catalysts. However, the Monday trading volume is going to be higher, maybe for a few weeks, as the market moves into correction and the volume should decline as the market waits for catalysts.

We will see volatility in the next two to three weeks as reconciliation of portfolios takes place. The market speculates a decline for BN-aligned companies and an uptrend for Pakatan-aligned ones.

Technically and fundamentally, the market is still bullish. For the FBM KLCI, we may see a correction in the immediate term, but as long as it can stay above the support level 1,790 points based on the long-term uptrend line, the market may continue its bullish trend and the index may climb to historical highs if the immediate resistance at 1,880 points is broken.

Henceforth, a pullback in the stock market could be good opportunities for accumulation as the trend is still bullish, supported by bullish market performances globally. Rising crude oil and other commodity prices may help to strengthen the ringgit, although in the immediate term, it may weaken due to speculation.

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.