Market directionless with a bearish bias

This article first appeared in The Edge Financial Daily, on December 6, 2017.
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The market was directionless last week on local institutions selling but was supported by foreign institutions as the ringgit strengthened. The mixed global markets’ performances added to the uncertainty and furthermore, the market was closed last Friday for a holiday. The FBM KLCI closed almost unchanged from the previous week at 1,717.86 points last Thursday. Yesterday, the market was supported and the index rose 11.7 points to close at 1,724.84 points.

Trading volume was firm last week compared with the previous week but trading value was high. This indicates the market was mostly participated by institutions. The average was firm at 2.2 billion shares last week, but the average daily trading value jumped from RM2.5 billion to RM4.4 billion.

A stronger ringgit once again helped boost buying from foreign institutions. Net buying from foreign institutions was RM274 million, while net selling from local institutions and retailers were RM286 million.

For the FBM KLCI, gainers pared decliners, same as the previous week. The top gainers for the week were DiGi.Com Bhd (+5.2% in a week to RM4.64), Tenaga Nasional Bhd (+4.3% to RM16.46) and Astro Malaysia Holdings Bhd (+3.7% to RM2.84). The top decliners were Petronas Gas Bhd (-5.3% to RM15.88), YTL Corp Bhd (-4.9% to RM1.17) and Genting Bhd (-4.4% to RM8.80).

In Asia, China markets including Hong Kong fell for a bullish trend correction, while Japan increased to near historical highs. The US market soared to historical highs, while European markets fell for a correction after a rebound two weeks ago.

The US dollar was firm last week but weakened against the ringgit. The US dollar index was firm at 92.8 points last Friday. The ringgit strengthened against the US dollar from RM4.11 to RM4.09 to a US dollar last Friday.

As for major commodities prices, crude oil was firm while gold fell marginally. Brent crude was almost unchanged from the previous week at US$63.70 (RM259.26) per barrel last Friday. Commodity Exchange gold declined only 0.4% to US$1,283.10 an ounce. Crude palm oil futures fell 0.8% to close at RM2,604 per tonne last Thursday on demand worries. 

The market was supported last week but was weak as sellers continued to take the opportunity to sell when the market rebounds. The stronger ringgit helped foreign institutions to support the market but if the ringgit weakens, the market may continue to decline. Immediate resistance is at 1,730 points and support is at 1,705 points.

Technically, the index remained bearish below the 30- and 200- day moving averages and the Ichimoku Cloud indicator. The Cloud is expanding downwards and this indicates that there is no sign of the bearish trend finding support. Furthermore, the Average Directional Index indicator is increasing, indicating that the bullish trend is supported well.

However, momentum indicators like the Relative Strength Index and oscillator are showing a positive divergence against the bearish FBM KLCI. This indicates a weaker bearish trend. A weak bearish trend indicates that support is getting stronger in a downtrend. Furthermore, the index is rebounding from the bottom band of the Bollinger Bands indicator towards the middle band and the moving average convergence divergence indicator is about to cross above its moving average/trigger line.

The FBM KLCI nearly tested the support level at 1,705.0 points last week based on the 50% Fibonacci retracement level of the bullish trend that started since the beginning of this year (The index went to as low as 1,710.0 points last Thursday). 

The market remained directionless and the indicators were mixed and, hence, there is no clear direction especially if the FBM KLCI continues to stay between 1,705 and 1,730 points. Therefore, if the index breaks below this level, it may fall to the next support level at 1,685, based on the 61.8% Fibonacci retracement level. However, if the market does rebound, the market may face resistance when the index approaches 1,730.0 points. 

The above commentary is solely used for educational purposes and is the writer’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.