This article first appeared in The Edge Financial Daily on May 2, 2018
The market pulled back for a correction last week just after it closed at a historical high two weeks ago. Weaker ringgit dampened market sentiment. Furthermore, the market was also cautious due to the upcoming 14th general election (GE14). The FBM KLCI fell 1.3% in a week to 1,863.47 points last Friday and on Monday, it closed at 1,870.37 points.
Trading activity continued to weaken last week. The average daily trading volume shrank to 1.9 billion shares from 2.6 billion two weeks ago. The average daily trading value fell to RM2.2 billion from RM2.4 billion. This indicated that the market was being more cautious.
Market participation was mixed and local institutions were net sellers. Net sell from local institutions was RM76 million while net buy from local retail investors and foreign institutions were RM51 million and RM25 million respectively.
For the FBM KLCI, decliners beat gainers three to one last week. Top gainers for the week were DiGi.Com Bhd (+2.2% to RM4.63), PPB Group Bhd (+1.2% to RM19.24), and KLCC Real Estate Investment Trust Bhd (+0.5% to RM7.39). The top decliners were Sime Darby Bhd (-8.2% to RM2.57), Nestle (Malaysia) Bhd (-6.5% to RM138.40), and Press Metal Aluminium Holdings Bhd (-6.1% to RM4.80).
Global market performances were mixed last week. In Asia, Malaysia and Hong Kong markets fell while Singapore, China and Japan markets closed higher. The US market fell but European markets closed mostly higher.
The US dollar continued to strengthen against major currencies. The US Dollar Index increased to 91.5 points last Friday from 90.3 points the week before. The ringgit weakened against the US dollar despite the weaker US Dollar Index. The ringgit was RM3.92 to a US dollar last Friday against RM3.90 the week before.
For commodities, crude oil (Brent) rose 1% in a week to US$74.44 (RM291.80) a barrel. Gold (COMEX) fell 1% in a week to US$1,324.10 an ounce. In the local market, crude palm oil futures fell 1.4% to RM2,381 per tonne.
The FBM KLCI fell below the immediate support level of 1,875 points last week. This indicated a weak bullish momentum despite the index rising to historical high two weeks ago. However, the index rebounded from the 61.8% Fibonacci retracement level of the bullish rally that started in early April at 1,844 points. The 61.8% retracement is usually the last support level for a bullish rally.
Technically, the trend is bearish in the short term but in the intermediate term of three months, the index is basically directionless. The FBM KLCI has been whipsawing against the 30-day moving average in the past three months. However, in the longer term, the index remains bullish above the 200-day moving average and the Ichimoku Cloud indicator. The support level for the long-term bullish trend is at 1,800 points.
Momentum indicators indicate a bearish bias for the index. The momentum gained in the last three weeks was subdued by the decline last week. The Relative Strength Index and Momentum Oscillator indicators pulled back to their mid-levels and the Moving Average Convergence Divergence indicator was below its moving average. Furthermore, the FBM KLCI pulled back to the mid-band of the Bollinger Bands indicator.
The market seemed technically bullish until the pullback last week. Technically, the market is expected to remain bullish if it can stay above 1,844 points in the short term. If this level cannot hold, the index may test the longer-term support level at 1,800 points.
In the next one or two weeks, we expect the market to trend sideways with a bearish bias towards the GE14 on May 9. The FBM KLCI is expected to trade between the immediate support level of 1,844 points and resistance of 1,880 points.
The above commentary is solely used for educational purposes and is the writers 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.