FBM KLCI set to trend higher

This article first appeared in The Edge Financial Daily, on August 8, 2018.
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The FBM KLCI bucked global market trend last week and closed higher for the fourth week. It increased 0.6% in a week to 1,780.09 points last Friday. The index climbed to a two-month high last Wednesday at 1,788.31 points before pulling back on profit-taking. Surprisingly, foreign institutions were net buyers despite the weakening ringgit. Commodity-based stocks, which benefit from a weaker ringgit, helped support the market.

Trading volume declined last week. This shows that the market is cautious despite the index closing higher. The average daily trading volume fell to 2.3 billion shares from 3.2 billion shares two weeks ago and the average daily trading value fell to RM2.3 billion from RM2.7 billion.

After being net sellers for weeks, foreign institutions turned net buyers. Net buying from foreign institutions was RM349 million and net selling from local institutions was RM355 million. Meanwhile, local retailers were net buyers at RM6 million.

For the FBM KLCI, gainers outpaced decliners 18 to 11. The top three gainers were Malaysia Airports Holdings Bhd (+7.7% in a week to RM9.80), Dialog Group Bhd (+7.6% to RM3.38) and Press Metal Aluminium Holdings Bhd (+4.4% to RM4.70). The top three decliners were Telekom Malaysia Bhd (-6.8% to RM3.68), IHH Healthcare Bhd (-2.5% to RM5.90) and CIMB Group Holdings Bhd (-1.7% to RM5.79).

Global markets were generally bearish. In Asia, declines were led by the Shanghai Stock Exchange Composite Index which fell 4.6% in a week as the market remained concerned over the US-China trade war. Germany led the fall in Europe with a 1.9% decline while the US Dow Jones Industrial Average remained firm. The US market was supported by Apple Inc which became the first company in the world to be worth US$1 trillion.

The US dollar continued to strengthen against major currencies. The US dollar index closed at 95.2 points last Friday compared with 94.7 points the week before. The ringgit weakened against the US dollar at RM4.08 to a US dollar compared with RM4.06 the week before.

Commodity prices were generally directionless last week. The Commodity Exchange closed almost unchanged at US$1,221.90 (RM4,980.83) an ounce last Friday compared to the previous Friday’s close. Crude oil (Brent) fell 1.3% to US$73.42 a barrel. Back home, crude palm oil futures found some support and increased 0.5% to RM2,197 per tonne last Friday.

The FBM KLCI closed higher for the fourth week. However, the index failed to overcome the 1,790-point resistance level despite testing it. The immediate support level is currently at 1,760 points.

Technically, the FBM KLCI remained bullish in the short term above the short-term 30-day moving average and even climbed and stayed above the Ichimoku Cloud indicator. The Cloud seems to be converging and changing direction from being bearish to bullish. However, the index tested the long-term 200-day moving average but failed to climb above it.

The momentum of the bullish trend, however, has weakened. This can be seen in the weekly change in the past four weeks. Furthermore, the Relative Strength Index and momentum oscillator indicators are starting to pull back. However, the moving average convergence divergence indicator is still above its moving average.

However, the market is still being supported well as the index was being supported despite a correction expectation. Further increase this week, especially if the index can break and stay above the immediate resistance level at 1,790 points, indicates a continuation of a bullish trend. Henceforth, the FBM KLCI is set to trend higher towards the next resistance level at 1,870 points.

The above commentary is solely used for educational purposes and is the writer’s point of view using technical analysis. The commentary should not be construed as an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.