This article first appeared in The Edge Financial Daily, on September 23, 2015.

The FBM KLCI rose to a month high last week as it climbed above the immediate resistance level at 1,660 points. The index went as high as 1,692 points but was unable to sustain after the ringgit started to weaken again and crude oil prices fell. The index bucked the regional market indices trend. The KLCI declined 0.7% in a week to 1,635.37 points yesterday.

Trading volume declined as the market started to be cautious after a rally two weeks ago. The daily average volume in the past week was 2.1 billion shares compared with 2.3 billion shares two weeks ago. Average trading volume, however, increased from RM2.3 billion two weeks ago to RM2.4 billion in the past week. This shows that the market focus is only on higher priced stocks.

Foreign institutions, which were net sellers for many weeks, turned net buyers from Monday to Friday last week. Net buying from foreign institutions was RM685 million while net selling from local institutions and local retail was RM520.3 million and RM164.7 million respectively.   

Decliners outpaced gainers four to three in the KLCI. Top gainers were SapuraKencana Petroleum Bhd (+6.4% from last week), Genting Bhd (+4.0%) and IOI Properties Group Bhd (+2.1%). The top three decliners were Genting Malaysia Bhd (-8.8%), RHB Capital Bhd (-3.9%) and CIMB Group Holdings Bhd (-3.9%).

Markets in Asia rebounded but the movement in the past week was volatile and generally directionless. China’s Shanghai Stock Exchange Composite Index rebounded and increased 6% in a week to 3,186.32 points. Hong Kong’s Hang Seng Index increased 1.6% to 21,796.58 points. Singapore’s Straits Times rose 0.9% to 2,868.47 points. Japan’s Nikkei 225 index increased 0.2% to 18,070.21 points last Friday. The market is closed for holidays from Monday to today.

US and European markets were mixed but generally bearish and the markets fell in the past few days. On Monday, the US Dow Jones Industrial Average rose 0.8% in a week to 16,510.19 points. Germany’s DAX Index declined 1.8% to 9,948.51 points in a week and London’s FTSE 100 rose only 0.3% to 6,120.35 points.

The US dollar rebounded and strengthened against major currencies. The US dollar index rose from 95.4 points a week ago to 96 points on Monday. Despite the stronger US dollar, the gold price rebounded. Comex gold rose 2.3% in a week to US$1,133.20 (RM4,861.42) an ounce. WTI crude oil increased 5.9% in a week to US$46.72 per barrel. The price movement in the past two weeks was directionless. Crude palm oil on Bursa Malaysia continued to increase 1.7% in a week to RM2,183 per tonne yesterday.

Technically, the KLCI is bullish in the short term, above the 30-day moving average. However, the index is below the long-term 200-day moving average and failed to break above the Ichimoku Cloud indicator. The Cloud is still narrow and this indicator indicates that the KLCI is expected to be directionless in a correction at least for one more week as the Cloud thickens again.

Momentum indicators like the RSI and Momentum Oscillator are declining, but still above their mid-levels. The MACD indicator is also above its moving average. This indicates that the trend is still bullish but the momentum is weakening. Furthermore, the index is still above the middle band of the Bollinger Bands. However, the bands stopped expanding and this shows that the momentum is weakening.

The weak momentum shows that the KLCI has been in a correction in the past week. It is currently on a crucial support level for the short term uptrend and a break below the immediate support level at 1,620 points indicates that the sentiment has turned bearish and further downside is expected. The index may fall to the next support level at 1,570 points if the immediate support level is broken. The market is expected to continue trading sideways if the index is able to stay above 1,620 points. As the ringgit started to weaken again, it is probably time to look at export-oriented companies.

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.