This article first appeared in The Edge Financial Daily on February 14, 2018

The market was very volatile last week after the US market started to plunge last Monday. Markets globally were shaken and started to decline sharply as well. However, there was support and rebound was strong but then selling pressure came in immediately after a rebounding causing markets, including the local market, to be volatile.

Interest rate hikes and expected lower corporate earnings were the main bearish catalysts. The FBM KLCI fell 2.7% in a week to 1,819.82 points. The decline, however, is considered small as compared with the fall in markets globally. The declines in the past two weeks has caused most global markets to fall into the red year-to-date. However, the FBM KLCI is still positive year-to-date. 

The index rebounded this week and closed at 1,833.02 points yesterday.

Trading volume was higher last week but was more of a bearish pressure. The average daily trading volume increased to 3.2 billion shares from three billion shares two weeks ago. The average daily trading value increased to RM3.4 billion from RM3.2 billion. 

In the midst of strong selling by foreign institutions, local institutions picked up shares. Foreign institutions remained net buyers in Bursa Malaysia although the ringgit has marginally weakened against the US dollar. Net buying from local institutions was RM1,799 million and net selling from local institutions was RM1,751 million.

Only three out of 30 counters closed higher from last week in the FBM KLCI. The top gainers for the week were Westports Holdings Bhd (+3.7% in a week to RM3.62), KLCC Properties and REITS – Stapled Securities Bhd (+1.2% to RM7.80) and Nestle (M) Bhd (+0.2% to RM116.10). The top decliners were Sime Darby Bhd (-8.1% to RM2.72), YTL Corp Bhd (-7.8% to RM1.42) and Hap Seng Consolidated Bhd (-7.3% to RM9.01). 

Global markets plunged last week on US cues. Most markets are in the red since the beginning of this year but the FBM KLCI managed to stay in the black. The US Dow Jones Industrial Average fell 5.2% in a week. UK, Germany and France benchmark stock indices fell about 5%. UK’s FTSE fell 4.8% in week to its lowest level in a year. In Asia, China, Hong Kong and Japan benchmark indices plunged around 9%. 

The US dollar marginally strengthened against major currencies last week. The US dollar index increased to 90.3 points last Friday from 89.1 points the week before. Therefore, the ringgit weakened against the US dollar from RM3.88 against the greenback to RM3.94 last Friday.

Oil prices fell last week on glut worries. Brent crude oil futures declined 8.1% to close at US$62.71 (RM247.07) per barrel last Friday. Gold (Commodity Exchange futures) declined 1.3% to US$1,315.70 an ounce. However, crude palm oil futures increased 1.9% in a week to close at RM2,515 per tonne last Friday.

The market has been volatile in the past one week. The FBM KLCI fell below the crucial support level at 1,840 points and went as low as 1,795.85 points. The index rebounded but failed to climb back above 1,840 points. This shows that the sentiment is still bearish. 

Technically, the FBM KLCI is bullish in the long term above the 200-day moving average and the Ichimoku Cloud indicator. However, the index is struggling to maintain above the short term 30-day moving average. It is currently whipsawing against this average and is now slightly below it. This indicates that the bullish trend is in a correction.

The bullish momentum has weakened from the steep pull back. Momentum indicators like the Relative Strength Index and oscillator has declined to its mid-level and the moving average convergence divergence indicator has fallen below its moving average and declining. The FBM KLCI may rebound but if it declines further, we are going to expect a bigger downward correction.

The FBM KLCI is expected to stage a technical rebound this week. Immediate resistance is at 1,845. If the index fails to climb above this level (which is the 61.8% Fibonacci retracement level from the current short-term bearish trend), then expect a bigger down correction as the next support is at 1,770 points based on the long-term 200-day moving average. 

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.