The FBM KLCI rebounded last Friday and continued to rise until yesterday, and this recovered the loss made last week. I have mentioned last week that the market is expected to be directionless — and the volatility to continue. The market was fragile and could be easily affected by news. The weak ringgit continued to weigh on the market. However, the KLCI managed to close higher from last week as rebounds in the global markets boosted market confidence.

The KLCI increased 0.5% in a week to 1,721.10 points, after rebounding from a low of 1,685.03 points. Trading volume was firm in the past one week as the market was in a festive mood. The average trading volume last week was 1.7 billion shares. The average trading value was also firm in the past one week at RM1.8 billion. 

Selling by foreign institutions intensified in the past one week despite the rebound. Local institutions and retail were the market support. From Monday to Friday last week, net selling by foreign institutions was RM811.7 million, while local institutions’ net buying was RM785.7 million. Local retail’s net buying was only RM26 million.  

For the KLCI, gainers outpaced decliners 17 to 10. The top gainers were Petronas Chemicals Group Bhd (up 5.1% from last week), Westports Holdings Bhd (3.6%) and AMMB Holdings Bhd (3.2%). The top three decliners for the index were CIMB Group Holdings Bhd (down 5.6%), Genting Malaysia Bhd (4.6%) and MISC Bhd (3.4%).

Markets rebounded last week after the eurozone agreed to a Greek bailout. China’s Shanghai Stock Exchange Composite Index rose 5.3% in a week to 3,926.03 points. Hong Kong’s Hang Seng Index increased 0.6% in a week to 25,120.91 points, after rebounding from a low of 22,837 points last week. Japan’s Nikkei 225 increased marginally in a week to 20,385.33 points. However, Singapore’s Straits Times Index declined 0.7% to 3,316.50 points, despite rebounding from a low of 3,250 points last week.

Markets in the United States and Europe were more bullish. On Monday, the US Dow Jones Industrial Average rose 1.7% in a week to 17,977.68 points. Germany’s DAX Index increased 5.4% in a week to 11,484.38 points and London’s FTSE 100 increased 3% to 6,729.93 points. 

The US Dollar Index rose marginally on the euro crisis, increasing from 96.5 points to 97 points. Prices of commodities continued to be pressured. Comex gold declined 1% in a week to US$1,157.00 an ounce. Crude oil price fell to its lowest in nearly three months. WTI crude oil fell 1.3% in a week to US$52 (RM198.12) per barrel. Crude palm oil on Bursa Malaysia fell marginally lower to RM2,204 per tonne.

The KLCI rebounded from a crucial support level at 1,670 points, which is the neckline/confirmation of a long-term bearish trend reversal pattern called the “head and shoulders”. The KLCI is still bearish in the short term, below the 30-day moving average and the Ichimoku Cloud indicator. However, a double-bottom chart pattern was formed in the past one month, and this shows that the price may have found a bottom in the short term. However, we could only expect the short-term trend to be bullish if the index can break above the immediate resistance level at 1,739 points.

The momentum indicators, like the RSI and Momentum Oscillator, show a bullish divergence during the double-bottom formation, and this indicates that there is a possibility for the short-term trend to turn bullish. Furthermore, the MACD indicator is above its moving average, and this indicates that a bullish momentum is building up.

Technically, the KLCI remains in a bearish trend correction. The market may continue to be directionless if it stays between 1,680 and 1,740 points. Fundamentally, I do not see any catalyst that can turn the market into an uptrend, and this indicates that there is more downside risk. The weak ringgit, the foreign institution selling and falling commodities prices may weigh down the market. The KLCI is just above the crucial support level at 1,680 points, and as long as the index stays above this level, there is still a chance for the market to turn around.

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 July 15, 2015.