This article first appeared in The Edge Financial Daily on October 17, 2018
The market fell sharply after the government hinted that it was reducing share exposure in government-linked public listed companies. The market was further spooked by the plunge in the US markets that sent negative vibes to global markets. However, the local market staged a technical rebound last Friday.
The FBM KLCI fell 2.6% in a week to close 1,730.74 points last Friday after rebounding from a low of 1,682.98 points last Thursday. The index inched higher this week to close at 1,736.84 points yesterday.
Trading volume increased slightly higher. The average daily trading volume increased to 2.5 billion from 2.4 billion shares in the previous week and the average daily trading value rose to RM2.5 billion from RM2.1 billion.
The biggest sellers were foreign institutions, reacting to the government’s plan to rationalise its holdings in public listed companies. Net sell from foreign institutions was RM1.05 billion while net buys from local institutions and local retail investors were RM603 million and RM448 million respectively.
For the FBM KLCI, decliners beat gainers five to one. The top three gainers were IHH Healthcare Bhd (+1.6% in a week to RM5.18), KLCC Property Holdings Bhd (+0.7% to RM7.60), and IOI Corp Bhd (+0.2% to RM4.50). The top three decliners were Telekom Malaysia Bhd (-15.6% to RM2.60), Genting Malaysia Bhd (-11.9% to RM4.35), and Axiata Group Bhd (-9.1% to RM3.91).
The fall in the Malaysian market was in line with global markets. In Asia, China’s Shanghai Stock Exchange Composite Index led the fall with a 7.6% weekly decline, the lowest level since December 2014. US Dow Jones Industrial Average fell 4.2% in a week and most European markets including the UK are currently near 2018 lows.
US dollar has slightly weakened against major currencies. The US Dollar Index (which measures the US dollar against major currencies) declined to 95.2 points last Friday from 95.6 points the week before. The ringgit weakened slightly against the US dollar at RM4.15 to a US dollar compared with RM4.14 in the previous week.
Price of gold has increased amid fear in the equity markets. Price of gold on COMEX rose 1.3% in a week to US$1,221.60 (RM5,069.64) an ounce. Brent crude oil fell 4.2% to US$80.60 a barrel on profit-taking after climbing to its highest level in four years two weeks ago. Locally, crude palm oil futures fell 1.1% to RM2,194 per tonne on higher inventory.
The FBM KLCI broke below the immediate support level at 1,780 points. This is also the neckline or the confirmation level of the head and shoulders pattern. The target for the pattern was 1,720 points and the index fell way below this level but managed to rebound to close above this level. Immediate support level is currently at 1,683 points and resistance is at 1,755 points based on the 50% Fibonacci retracement level of the immediate down trend.
Technically, the FBM KLCI trend is bearish below both the short- and long-term 30- and 200-day moving averages. Furthermore, the index has fallen and stayed below the Ichimoku Cloud and this indicates a strong bearish trend.
Momentum indicators are indicating a strong bearish momentum. Momentum indicators like the Relative Strength Index and Momentum Oscillator have fallen to their oversold levels. The moving average convergence divergence (MACD) indicator has continued to fall and the gap between the MACD and its moving average has continued to widen. This indicates that the bearish trend momentum is getting stronger.
The FBM KLCI is now in a bearish trend. However, the indicators are showing that the index is oversold in the short term and hence a technical rebound is expected. This was showcased at the end of last week. However, the bearish trend may continue if the index fails to climb above the immediate resistance level of 1,755 points. Therefore, if the index fails to climb above the resistance level, it may test the support level or last week’s low at 1,683 points in the near term.
The above commentary is solely used for educational purposes and is the contributor’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.