This article first appeared in The Edge Financial Daily on February 21, 2018
Global market indices including the FBM KLCI rebounded last week after a steep decline two weeks ago. The FBM KLCI increased 1% in a week to 1,838.28 points last Thursday. Market sentiment was boosted by a stronger ringgit and the rebounding of global markets. The index continued to increase this week and closed at 1,855.99 points yesterday.
Trading volume dropped significantly as market participants started to take a break from the stock market ahead of the Chinese New Year holidays. The average daily trading volume fell to 1.7 billion shares from 3.2 billion shares two weeks ago. The average daily trading value increased to RM2 billion from RM3.4 billion.
Local institutions were the net buyers in the first three days of last week. Net buying from local institutions was 111 million and net selling from foreign institutions and local retailers were 55 million and 56 million respectively.
For the FBM KLCI, only four out of 30 counters closed lower from last week. The top gainers for the week were Axiata Group Bhd (+3.3% in a week to RM5.60), Nestle (M) Bhd (+2.8% to RM119.40) and Maxis Bhd (+2.7% to RM6.04). The top decliners were Sime Darby Bhd (-1.8% to RM2.67), Hong Leong Financial Group Bhd (-1.7% to RM18.26) and MISC Bhd (-1.3% to RM7.04).
Markets globally rebounded last week after plunging two weeks ago. In Asia, the increase was led by Hong Kong’s Hang Seng Index which rose 5.4% in a week. In the western markets, the US Dow Jones Industrial Average rose 4.3%, while in Europe, France’s CAC 40 Index led with a 3.7% increase.
The US dollar was weaker against major currencies last week. The US dollar index fell to 89.1 points last Friday from 90.3 points the week before. The ringgit strengthened against the US dollar from RM3.94 against the greenback to RM3.89 last Thursday.
Brent crude oil futures rebounded and increased 3.5% to close at US$64.90 (RM253.25) per barrel last Friday. Commodity exchange gold also rebounded and increased 2.4% to US$1,349.40 an ounce. However, crude palm oil futures were directionless and fell only 0.4% in a week to close at RM2,506 per tonne last Thursday.
Two weeks ago, the FBM KLCI fell below the support level at 1,840 points. Last week, the index rebounded but was still below the broken support level. Therefore, the market was cautious last week despite bargain hunting when the market fell two weeks ago. Immediate resistance is at 1,850 points based on the 61.8% Fibonacci retracement level of the bearish trend that started in early February.
Technically, the FBM KLCI is bullish above both the short- and long-term 30- and 200-day moving averages. Furthermore, the index is above the Ichimoku Cloud indicator which is expanding upwards. However, the bullish trend can only continue if the technical resistance level at 1,850 points can be broken.
Momentum indicators are mixed. The Relative Strength Index and oscillator indicators have climbed above their mid-levels and this indicates that the sentiment has turned bullish. However, the moving average convergence divergence indicator is still declining below its moving average. Furthermore, the Bollinger Bands indicator is narrowing.
The FBM KLCI rebounded last week but to continue its bullish trend, the index has to overcome the technical resistance level at 1,850 points. A breakout above this level could bring the index to test the historical high at 1,890 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.