Further decline expected for FBM KLCI

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This article first appeared in The Edge Financial Daily, on November 23, 2016.


The market continued to decline as the ringgit continued to weaken against the US dollar. The market was also cautious ahead of the planned Bersih 5 rally. The market performance was mixed but the US market rose to a historical high after US Federal Reserve chairman Janet Yellen hinted at a rate hike soon, which strengthened the US dollar.

The FBM KLCI declined 0.6% in a week to 1,623.80 points last Friday on lower trading volume. Yesterday, the index closed at 1,629.32 points. The ringgit was at RM4.41 last Friday,  compared with RM4.36 in the previous week.

The average daily trading volume last week was 1.6 billion shares, compared with 1.8 billion shares two weeks ago. The average trading value declined from RM2.3 billion two weeks ago to RM2.1 billion. Total market valuation fell RM5.6 billion from the previous week to RM1,662.6 billion last Friday.

Foreign institutions’ selling pressure continued to strengthen last week. Net selling from foreign institutions last week was RM1.1 billion and net buying was mainly from local institutions.

Decliners beat gainers two to one on the FBM KLCI. The top gainers for the week were AMMB Holdings Bhd (+4.1% in a week to RM4.11), Genting Bhd (+2.2% to RM7.84) and IHH Healthcare Bhd (+1.3% to RM6.39). The top decliners were CIMB Group Holdings Bhd (-4.1% to RM4.64), Petronas Gas Bhd (-3.2% to RM21) and YTL Corp Bhd (-2.6% to RM1.52).

In Asia, China markets were bearish but markets which are friendly to the US rose. China’s Shanghai Stock Exchange Composite Index declined 0.1% in a week to 3,193.27 points last Friday. Hong Kong’s Hang Seng Index fell 0.8% in a week to 22,344.21 points. Japan’s Nikkei 225 index surged 3.4% in a week to 17,967.41 points and Singapore’s Straits Times Index rose 0.9% to 2,838.65 points.

The US market continued to soar to historical highs and European markets followed the US cue. The Dow Jones Industrial Average increased 0.1% in a week to 18,867.93 points last Friday. London’s FTSE 100 Index rose 0.6% in a week to 6,772.25 points and Germany’s DAX Index shed 0.2% to 10,669.05 points.

The US dollar index futures rose to a 13-year high last week. The index increased from 98.7 points to 101.4 points last Friday. Hence, the gold price fell 1.4% in a week to US$1,207.30 (RM5,324.19) an ounce. Crude oil posted its first weekly gain after four weeks of decline. Brent crude oil rose 2.8% in a week to US$46.89 per barrel. Crude palm oil on Bursa Malaysia fell 3.6% in a week to RM2,869 tonne.

The decline last week confirms the downside that we have expected the market to head. The FBM KLCI failed to climb back above the broken support level at 1,650 points and remained bearish below the short-term 30- and 200-day moving averages and the Ichimoku Cloud indicator.

The bearish momentum continued to strengthen. Momentum indicators like the Relative Strength Index and momentum oscillator indicators fell lower than the previous week and the moving average convergence divergence indicator continued to decline without showing any signs of reversal. Furthermore, the Bollinger Bands continued to expand with the FBM KLCI trading near the bottom bands.

The weakened ringgit and political turmoil have dampened market sentiment. There is no positive catalyst that may support the market at this point of time and the technical indicators continue to show a bearish trend without any signs of reversal. The index has to climb back above 1,650 points to boost market sentiment and reverse the current trend.

Henceforth, we expect the FBM KLCI to remain bearish and test the 1,610-point support level. This is a crucial support level and if this level is broken and the index stays below it, we can expect stronger declines and the index may fall to 1,570 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 an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment advisor.