BEARISH momentum continued on Bursa Malaysia as a weaker ringgit and continuous selling in the oil and gas sector dragged the index lower. However, the FBM KLCI rebounded yesterday after five days of decline.

The FBM KLCI declined 0.4% in a week at 1,818.38 points yesterday. The decline is weaker than the previous week’s decline of 1.2%. Markets in the region became more cautious in the past week after Japan’s economy fell into a technical recession.

Trading volume has declined significantly in the past week and this indicates that the selling pressure has eased and the market was being cautious and stayed on the sidelines. Average daily trading volume in the past week was only 1.6 billion shares  compared with 2.6 billion shares in the previous week. The average daily trading value declined from RM2.3 billion two weeks ago to RM1.9 billion. Total market valuation fell RM14 billion from last week to RM1,735 billion.

Both local and foreign institutions were net sellers last week (last Monday to last Friday). Local institutions’ net selling was RM51.0 million and foreign net selling was RM27.3 million. In the FBM KLCI, decliners marginally edged gainers 8 to 7. Decliners in the index were led by Petronas Chemicals Sdn Bhd (-5.9% from last week), Felda Global Ventures Holdings Bhd (-4.5%) and Petronas Dagangan Bhd (-4.5%), and gainers were led by Tenaga Nasional Bhd (+3.8%), Kuala Lumpur Kepong Bhd (+3.2%) and Axiata Group Bhd (+2.4%)

Markets in Asia pulled back in the past two days, wiping out some earlier gains, and performances were mixed on a week-to-week basis. China’s Shanghai Stock Exchange Composite declined 0.5% in a week to 2,457.53 points yesterday. Japan’s Nikkei 225 increased 1.3% in a week to 17,344.06 points, near its seven-year high. Meanwhile, Singapore’s Straits Times Index increased only 0.7% in a week to 3,313.73 points. Hong Kong’s Hang Seng Index declined 1.2% to 23,529.17 points.

Markets in the United States struggled to record new highs and Europe was mixed. On Monday, the US Dow Jones Industrial Average increased only 0.2% in a week to 17,647.75 points. London’s FTSE100 Index increased 0.9% in a week to 6,671.97 points but Germany’s DAX declined 0.5% to 9,306.35 points. The US dollar index, that measures the US dollars against a basket of major currencies, rose marginally from 87.91 points a week ago to 88.01 points.

Uncertain economic growth spurs demand for precious metals. Price of gold continued to increase after a rebound two weeks ago. Commodity Exchange gold rose 3% in a week to US$1,186.60 (RM3,981) an ounce. Nymex WTI crude oil fell 2.2% in a week to US$75.48 per barrel after rebounding from its lowest level in three years at US$73.25 last Friday. Crude palm oil futures on Bursa Malaysia continued to decline last week on weak demand, falling 0.5% in a week to RM2,251 per tonne. The ringgit was weaker against the US dollar at RM3.35 per dollar as compared with RM3.33 a week ago.

Technically, the trend has turned bearish. First, it failed to break and stay above the long-term 200-day moving average (MA) and downtrend line three weeks ago. Now, the index declined below the short-term 30-day MA last week. However, the index rebounded from the support level we anticipated last week at 1,810 points, which is the 50% retracement level of the bullish trend that started in mid-October.

The price rebounded yesterday after testing and breaking below the support level to close at 1,806.48 points on Monday. The rebound yesterday indicates that there is support on the 50% retracement level. However, the momentum is bearish as the momentum oscillators like RSI and Momentum Oscillator fell below its mid-level. Furthermore, the index has also fallen below the middle band of the Bollinger Bands indicator.

The index has now retraced to the 50% Fibonacci retracement level of the bullish trend that started in mid-October. The index has rebounded from this level but it has to increase further to boost market confidence. The rebound may be capped at the immediate resistance level at 1,830 points. However, we expect the index to decline to the psychological level at 1,800 points if the index failed to rebound.

Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [email protected]. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions.

This article first appeared in The Edge Financial Daily, on November 19, 2014.