This article first appeared in The Edge Financial Daily on April 3, 2019
The market sentiment was bearish last week due to economic growth worries and the ringgit weakening against the US dollar. Also, the government’s spat with the European Union over the latter’s decision to phase out palm oil in biofuel production has raised investors’ eyebrows. The FBM KLCI declined 1.4% in a week to 1,643.63 points last week with a relatively lower trading volume. The index continued to decline this week and closed at 1,632.83 points yesterday.
The average daily trading volume fell to 2.4 billion shares last week from 3.4 billion shares the week before. However, the average daily trading value declined to RM1.9 billion from RM3.7 billion. This indicated that the market was cautious especially the institutional participants as more lower-capped stocks were being traded.
As ringgit weakened, foreign institutions continued to sell. Net sell from foreign institutions was RM162.2 million while net buys from local institutions and retail were RM107.2 million and RM55 million respectively.
For the KLCI, decliners beat gainers two to one. The top three gainers were Top Glove Corp Bhd (+4.3% in a week to RM4.62), PPB Group Bhd (+3.3% to RM18.32) and Kuala Lumpur Kepong Bhd (+1.9% to RM24.80). The top three decliners were Malaysia Airports Holdings Bhd (-5.9% to RM7.24), Genting Malaysia Bhd (-5.3% to RM3.20) and Press Metal Aluminium Holdings Bhd (-4.5% to RM4.51).
Global market performances were mixed. Asian markets were generally bearish but the local market bucked the trend. Of all the major Asian markets, the KLCI was the only index that went into the red year to date. Markets in Europe and the US closed higher last week.
The US dollar strengthened against major currencies last week after the US Federal Reserve decided not to raise key interest rate. The US Dollar Index, which measures the US dollar against a basket of major currencies, increased to 97.2 points last Friday from 96.6 points in the previous week. The ringgit weakened against the US dollar at RM4.08 per US dollar last Friday compared with RM4.06 the previous Friday.
Price of gold broke a two-week gain and fell on a stronger US dollar. Comex gold futures fell 1.3% in a week to US$1,296.95 (RM5,291.56) an ounce last Friday. Crude oil (Brent) gained for the third week to reach its highest in four months, increasing 0.8% to US$67.60 per barrel. In the local market, crude palm oil (BMD) fell 2.9% in a week to RM2,103 per tonne on demand worries.
The KLCI fell below the immediate support level of 1,665 points last week and therefore the next technical support level for the index is at 1,630 points. The broken support level of 1,665 points now becomes its immediate resistance level.
Trend-wise, the KLCI is bearish below both the short-term and long-term 30- and 200-day moving averages. The index remained below the Ichimoku Cloud indicator and the Cloud is getting bearish.
Momentum indicators continued to decline last week and this indicated that the bearish trend momentum was strong. The Relative Strength Index (RSI) and Momentum Oscillator declined and the Moving Average Convergence Divergence indicator remained below its moving average. However, the RSI indicator was near its oversold level.
The index’s performance in the past two weeks showed that the bearish strength has gained momentum. Furthermore, there is no positive news or catalyst to boost market confidence. The weakening ringgit may continue to put pressure on foreign institutions to continue reducing their exposure in the local equity market. Henceforth, the index is expected to decline to the next support level of 1,630 points if it continues to stay below the immediate resistance level of 1,665 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 investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.