THE FBM KLCI tested and broke above the resistance level at 1,820 points as we expected last week. Foreign institutions continued to buy in to the local market last week. The market could have climbed higher but was weighed down by a weaker ringgit and falling crude oil prices. The KLCI rose 0.9% in a week to 1,830.78 points, the highest level this year and in four months.
Trading volume was marginally lower compared with the previous week, with institutions continuing to support the bullish momentum. The average trading volume in the past week was 2.1 billion shares compared with 2.2 billion shares two weeks ago. Average daily trading value remained firm at RM2 billion. Net buying from foreign institutions last week (Monday to Friday) was RM352.2 million, while net selling from local institutions was RM279.8 million and local retail net selling was RM72.4 million.
On the KLCI, gainers outpaced decliners 11 to three. The top three gainers were Petronas Dagangan Bhd (+3.7% from last week), Genting Bhd (+3.5%) and SapuraKencana Petroleum Bhd (+2.6%). The top three decliners were RHB Capital Bhd (-1.4%), UMW Holdings Bhd (-1.3%) and Tenaga Nasional Bhd (-0.7%).
Markets in Asia were bullish despite mixed performances in the United States and Europe. China markets continue to rise to seven-year highs as the Shanghai Stock Exchange Composite Index increased 1.5% in a week to 3,749.03 points. Hong Kong’s Hang Seng Index increased 2% to 24,900.89 points, while Singapore’s Straits Times Index rose 1% to 3,447.01 points. However, Japan’s Nikkei 225 pulled back from its 15-year high and declined 2.6% to 19,206.99 points.
The US market pulled back last week but rebounded to cover some losses on Monday as the US Dollar gained strength. On Monday, the US Dow Jones Industrial Average declined 0.7% in a week to 17,976.31 points. Germany’s DAX Index increased 1.6% in a week to 12,086.01 points. However, London’s FTSE100 index pulled back from a record high last week and declined 1.9% in a week to 6,895.43 points.
The US dollar index rebounded last week after a decline two weeks ago, increasing from 97.3 points to 98.28 points. This caused the ringgit to weaken from 3.65 per US dollar last week to 3.70. The strong US dollar halted gold’s two-week bullish rally. Commodity Exchange gold declined 0.4% in a week to US$1,185.30 an ounce. Crude oil (Brent crude) rose marginally to US$56.29 per barrel. Crude palm oil futures on Bursa Malaysia were uncertain and increased 0.4% in a week to RM2,165 per tonne.
The breakout above the resistance level indicates that the KLCI is set to trend higher. The index climbed above its 200-day moving average for the first time since it fell below it at end-September last year. The bullish trend is gaining momentum in the short term as the short-term 30-day moving average has started to increase after two weeks of sideways movement. Furthermore, the index is well above the expanding Ichimoku Cloud indicator.
The indicators on the chart show that the KLCI’s bullish trend correction that started in August last year may come to an end, and the trend is expected to continue. In the short term, the momentum is strongly bullish as momentum indicators like the RSI, MACD and Momentum Oscillator are climbing higher. The stronger bullish momentum could support the bullish trend in the short term.
The strong bullish momentum is expected to continue if the KLCI can stay above 1,820 points. We may expect some pullback but technically, the index is set to test the next resistance level at 1,840 points. In the intermediate term, the KLCI may climb to historical highs this year. This week, I am expecting the KLCI to remain buoyant and supported above 1,820 points. However, the market may be cautious in the next few weeks as the goods and services tax (GST) will be implemented starting today and the market may want to observe the effects of GST on the equity market. Resistance is at 1,840 points.
On a side note, in April 1994, the Singapore Straits Times Index traded sideways for two years after GST was introduced at 3%. After two years of sideways movement, the Asian financial crisis took place at end-1996. Thailand introduced GST in 1992 at 10% and the market was bullish until the Asian financial crisis.
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 April 1, 2015.