This article first appeared in The Edge Financial Daily on September 26, 2018

The market was generally bullish last week and was in line with global market performances. Stronger ringgit and higher crude oil prices attracted foreign institutions. The FBM KLCI increased 0.4% in a week to close at 1,810.64 points last Friday. However, in the past two days, the index pulled back and closed at 1,794.47 points yesterday.

The trading volume shrank last week compared with the previous shorter week but trading value remained the same. This indicated more higher-capped stocks, normally traded by institutions, were being traded. The average daily trading volume declined to 2.1 billion from 2.5 billion in the previous week. However, the average daily trading value remained at RM2.6 billion.

Foreign institutions were net buyers while local market participants, both retail and institutional, were net sellers. Net buy from foreign institutions was RM515 million while net sells from local institutions and local retailers were RM464 million and RM51 million respectively.

For the KLCI, gainers outpaced decliners by two to one. The top three gainers were Press Metal Aluminium Holdings Bhd (+5.5% in a week to RM5.03), Hong Leong Bank Bhd (+2.8% to RM20.82), and Telekom Malaysia Bhd (+2.6% to RM3.21). The top three decliners were IOI Corp Bhd (-1.3% to RM4.48), RHB Bank Bhd (-1.3% to RM5.45), and Malayan Banking Bhd (-1.1% to RM9.79).

Global markets continued to be bullish. In Asia, the Japanese market took the lead with the Nikkei 225 increasing 4.6% in a week. Other biggest gainers were China’s Shanghai Stock Exchange Composite Index and Hong Kong’s Hang Seng Index, which rose 4.1% and 3.5% respectively. The US Dow Jones Industrial Average rose to a historical high while European markets ended up bullish as well.

US dollar continued to weaken against major currencies. The US Dollar Index declined to 94.2 points last Friday from 94.9 points the week before. It was the lowest in two months. The ringgit strengthened against the US dollar at RM4.13 to a US dollar compared with RM4.14 in the previous week.

Prices of major commodities closed higher. Gold (COMEX) snapped a three-week decline and increased 0.4% in a week to US$1,203.30 (RM4,981.66) an ounce last Friday. Crude oil (Brent) increased 0.9% to US$78.77 a barrel. Locally, crude palm oil futures fell 3.7% to close at RM2,139 per tonne on growing concerns over the inventory levels.

The KLCI is moving towards the consolidation phase resistance level at 1,830 points. The support level is at 1,780 points. Is the index going to break the resistance level at 1,830 points and climb higher or fall below 1,780 for a bigger correction?

Technically, the KLCI has risen above both the short- and long-term 30- and 200-day moving averages. This indicates a bullish trend. However, the index has been whipsawing against the moving averages in the past two weeks and this indicates uncertainty. The index is above the Ichimoku Cloud indicator and the expanding cloud indicates a strong support.

Momentum indicators are starting to show that the bullish momentum is gaining some traction. Momentum indicators like the Relative Strength Index and Momentum Oscillator rebounded from their middle levels. Also, the moving average convergence divergence indicator is starting to converge and climb towards its moving average. Further increase in the FBM KLCI would indicate a strong bullish momentum and that can happen if the index continues to climb in the next one week.

However, a “head and shoulders” chart pattern has been formed in the past one month and this pattern indicates a toppish trend. The pattern is only confirmed if the FBM KLCI falls below the pattern’s neckline or confirmation at 1,780 points. A breakout below this level could bring the index down to the next support level (which is also the target price for the “head and shoulders” pattern) at 1,723 points.

Nevertheless, the bullish trend that started in July can still be supported if the FBM KLCI stays above 1,780 points and should continue if it can break above the resistance level at 1,830 points.

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.