Rebound on technical support level

This article first appeared in The Edge Financial Daily, on August 23, 2018.
-A +A

The FBM KLCI snapped a five-week gain last week as the market started to take profit. The index declined 1.2% in a week to 1,783.47 points last Friday, in line with global market performances. However, the index rebounded this week and closed at 1,798.11 points.

Market data was slightly bearish. Firstly, corporate results for the second quarter were rather mixed, and secondly, Bank Negara Malaysia has revised the 2018 gross domestic product estimates downwards to 5% from 5.5% to 6%. Furthermore, the ringgit continued to weaken against the US dollar.

Trading volume declined slightly last week. The average daily trading volume fell to 2.3 billion shares from 2.4 billion shares two weeks ago. However, the average daily trading value increased to RM2.4 billion from RM2.3 billion.

Foreign institutions started selling again after being net buyers in the past two weeks. Since the general election, foreign institutions have been net sellers most of the time. Net selling from foreign institutions was RM631 million, and net buying from local institutions and retailers was RM485 million and RM146 million respectively.

For the FBM KLCI, decliners beat gainers four to one. The top three gainers were Hartalega Holdings Bhd (+3.9% in a week to RM6.86), Dialog Group Bhd (+1.5% to RM3.44) and PPB Group Bhd (+0.7% to RM16.90). The top three decliners were RHB Bank Bhd (-7.1% to RM5.09), Press Metal Aluminium Holdings Group Bhd (-6% to RM4.70) and Malaysia Airports Holdings Bhd (-5% to RM9.37).

Global markets were bearish last week except for the US. In Asia, the decliners were led by China. Shanghai’s Stock Exchange Composite Index fell 4.5% in a week to its lowest in 31 months. Hong Kong’s Hang Seng Index fell to a one-year low. European markets, including the UK, were generally lower but the US Dow Jones Industrial Average closed at its highest level in nearly six months last Friday.

The US dollar index, which measures the US dollar against a basket of major currencies, pulled back from a one-year high last week but still near the high. The US dollar index closed at 96.1 points last Friday compared with 96.3 points the week before. The ringgit weakened against the US dollar from RM4.08 two weeks ago to RM4.10 to a US dollar last Friday.

Major commodities prices fell last week. The Commodity Exchange gold price fell to a 19-month low in the middle of last week and eventually closed 2.2% lower in a week at US$1,191.80 (RM4,886.38) an ounce last Friday. Crude oil fell to a four-month low. Brent crude oil declined 1.5% in a week to US$71.86 a barrel. Crude palm oil futures started on a bearish note but rebounded to close only 0.2% lower in a week at RM2,238 per tonne last Friday.

After a steep decline last Monday, the FBM KLCI became directionless throughout the week. The index found support at 1,774 points last week. The minor Fibonacci retracement level of the current short-term bullish trend is at 1,775 points. The immediate resistance level is at 1,811 points.

Technically, the FBM KLCI remained bullish above the short-term 30-day moving average but fell below the long-term 200-day moving average last week. The FBM KLCI is also above a thick Ichimoku Cloud and this indicates good support for the bullish trend. In fact, the index is now sitting directly on the Cloud.

The pullback caused momentum indicators to decline. The Relative Strength Index and momentum oscillator indicators are declining but above their mid-levels. This indicates a weak bullish momentum in the short term. The moving average convergence divergence indicator has declined below its moving average.

Technically, the FBM KLCI is currently at the support level of a bullish trend. The index may find support and rebound from this level. Henceforth, if the FBM KLCI can stay above 1,774 points, the bullish trend may expand and climb towards the historical high as we have anticipated.

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 investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.