IT has been a roller-coaster ride for the stock market this year. The market was bullish in the first half of the year and even climbed to historical highs. However, the market turned bearish in the second half of the year as a weaker ringgit and falling crude oil prices weighed down corporate earnings, especially in the oil and gas, plantation and banking sectors. Just a week ago, the FBM KLCI fell to its lowest level in 20 months. Not only all the gains made in the first half of this year were wiped out, gains made in 2013 were also almost wiped out.
However, the market made a sharp U-turn last week and this minimised some losses. The KLCI rose 4.5% in a week to 1,749.05 points yesterday. The index has fallen 6.2% year-to-date. Trading volume rose from an average daily trading volume of 1.6 billion shares two weeks ago to 1.8 billion shares in the past one week as the market went on bargain-hunting as the year is coming to end. The average daily trading value in the past one week was firm at RM1.9 billion as compared with the average two weeks ago.
The weaker ringgit caused foreign institutions to continue their aggressive selling. Net selling from foreign institutions last week (Monday to Friday) was RM898 million. Local retail was also a net seller at RM119.6 million while local institutions net buying was RM1.0176 billion. In the KLCI, only 2 out of the 30 counters declined. Gainers were led by SapuraKencana Petroleum Bhd (+13% from last week), Petronas Chemicals Group Bhd (+12.4%) and IOI Corp Bhd (+8.5%) while the two decliners were Felda Global Ventures Holdings Bhd (-4.7) and IHH Healthcare Bhd (-0.6%).
Markets in Asia also rebounded last week, led by the bullish Japan market and strong rebound in the US and Europe markets. China’s Shanghai Stock Exchange Composite rose 0.4% in a week to 3,035.0 points after pulling back from its highest level in three years at 3,128.70 points on Monday. Japan’s Nikkei 225 increased 5.2% in a week to 17,635.14 points, near its 7-year high. Hong Kong’s Hang Seng Index rose 2.9% in a week to 23,333.69 points. Closer to home, Singapore’s Straits Times Index increased 3.7% in a week to 3,332.51 points.
On Monday, the US Dow Jones Industrial Average increased 4.5% in a week to a record close at 17,959.44 points. London’s FTSE100 Index rose 6.2% in a week to 6,574.10 and Germany’s DAX Index increased 5.7% to 9,865.76 points. The US dollar index increased from 88.68 points to 89.95 points, the highest in 8½ years. The ringgit weakened from 3.44 a week ago to 3.50 against the US dollar, the weakest in more than five years.
The strong US dollar put pressure on gold prices. Commodity Exchange gold declined 1.8% in a week to US$1,177 an ounce. Crude oil remained near a 5½ year low at US$55.38 per barrel after staying firm from last week. Crude palm oil futures on Bursa Malaysia rose 4.1% in a week to RM2,208 per tonne on stronger demand in December and falling production.
Technically, the KLCI is still in a downtrend despite the sharp rebound last week. The index is still below the short-term 30-day moving average at 1,773 points and the long-term 200-day moving average at 1,843 points. Both these moving averages are declining. Furthermore, the index is also below the Ichimoku Cloud indicator. However, the Cloud is narrow and this indicates that the index can be volatile and can easily change direction. The Cloud remains narrow in the next two weeks.
Momentum indicators remained bearish but have pulled out from their oversold levels. This indicates a weak bearish trend as the rebound is a correction of the bearish trend. The RSI indicator has rebounded and is now near its mid-level and the MACD indicator has crossed above its trigger line. In addition, the index is still trading below the Bollinger Bands but is currently testing the middle band.
The bullish momentum last week may continue this week but there may be resistance and hence would probably be a subdued bullish week. The market may face resistance when the index approaches the 1,760-point level, which was previously a support level. Therefore, the index is not out of the bearish trend unless it can break and stay above 1,760 points. With the year coming to an end, we expect the market to be window-dressed but this only benefit blue-chip stocks supported by local institutions. The retail market would probably stay out until the rest of the year and foreign institutions may continue to sell.
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 December 24, 2014.