This article first appeared in The Edge Financial Daily on July 18, 2018
The market rebounded last week on rebounds in Asian markets and the central bank’s move not to raise the overnight policy rate. However, the ringgit weakened and commodity prices continued to fall. Weakening ringgit caused foreign institutions to continue selling. Nevertheless, local market participants supported the market and the FBM KLCI increased 3.5% in a week to 1,721.93 points last Friday. The index continued to increase this week and closed at 1,737.28 points yesterday.
Trading volume increased last week. The average daily trading volume increased to 2.5 billion shares from 2.1 billion shares two weeks ago and the average daily trading value increased to RM2.5 billion from RM1.7 billion.
Foreign institutions remained net sellers in the market. Net selling from foreign institutions was RM532 million while net buying from local institutions and local retail investors were RM449 million and RM83 million respectively.
Only one stock fell last week and that was DiGi.Com (-0.5% to RM4.16). The top three gainers were Axiata Group Bhd (+8.3% to RM4.17), CIMB Group Holdings Bhd (+7.7% to RM5.72), and Petronas Gas Bhd (+7.6% to RM18.20).
Asian markets rebounded from the bearish trend last week and mostly closed higher. Other than the FBM KLCI, Shanghai Stock Exchange Composite Index and Japan’s Nikkei 225 rose above 3%. US Dow Jones Industrial Average rose 2.3% and most European markets rose marginally higher.
The US dollar index, which measures the US dollar against a basket of major currencies, closed slightly higher at 94.7 points last Friday from 94 points the week before. The ringgit weakened against the US dollar from 4.04 to a US dollar two weeks ago to 4.05 last Friday.
Commodity prices ended generally lower last week. The Commodity Exchange gold price fell 1.1% in a week to US$1,241.80 (RM5,029.29) an ounce. Crude oil (Brent) fell 3.1% in a week to US$74.92 a barrel. In Malaysia, crude palm oil futures fell 5.3% in a week to RM2,145 per tonne last Friday.
The market finally rebounded after four weeks of declines. We were expecting the index to continue to decline but the rebound last week saw the index climb above the immediate resistance level of 1,700 points.
Technically, the FBM KLCI is turning bullish in the short term as it rose above the short-term 30-day moving average. However, the index is still below the long-term 200-day moving average and the Ichimoku Cloud indicator. The Ichimoku Cloud remains bearish.
Momentum indicators like the Relative Strength Index (RSI), moving average convergence divergence, and oscillator are increasing and this indicates that the bearish momentum in the past has eased. In fact, the RSI and oscillator indicators have increased above their mid-levels and this indicates that the sentiment is turning bullish in the short term.
The market is staging a technical rebound. The rebound last week was quite strong and hence the bullish momentum may continue this week. However, the FBM KLCI may find resistance at 1,750 points based on the current down trend’s 61.8% Fibonacci retracement level.
The market confidence and trend may turn bullish if the index can break above this resistance level. If it fails to climb above this level, the market may resume its bearish trend. If it fails to rebound this week, the index may test the support level at 1,660 points again.
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.