KLCI expected to continue downtrend this week, support areas of 1,660 and 1,650 levels

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KUALA LUMPUR (Aug 10): The FBM KLCI is expected to continue its downtrend this week with the support areas of 1,660 and 1,650 levels.

Wall Street stock prices fell and US bond prices rose on Friday after the monthly US employment data came close enough to forecast to stoke bets the Federal Reserve will raise interest rates for the first time in nearly a decade perhaps as early as September, according to Reuters.

The US Labor Department said employers added 215,000 jobs in July, slightly below a Reuters poll of 223,000 jobs, but the unemployment rate held at a seven-year low of 5.3% and there were signs that wages were beginning to pick up, it said.

AffinHwang IB vice president and head of retail research Datuk dr Nazri Khan said that going forward, he expects the FBM KLCI index to continue its downtrend due to softer ringgit, a dip in commodity price and the growing signals of the impending hike in Federal Reserve interest rates.

Nazri said that local stocks finally had broken down from the two month 1,740–1,700 range and was now set for a lower territory.

“We expect currency and bonds volatility including ringgit and shorter-term notes to remain volatile day following the latest open statement from Mr Dennis Lockhart, president of the Atlanta Fed and a member of the central bank’s Open Market Committee, who said he is ready to support a September rate rise, barring any deterioration in economic activity,” he said.

Nazri,who is also president of the Malaysian Association of Technical Analysts, said that on the technical front, the FBM KLCI perked down 2.1% below 1,700 psychological level, in line with a relatively cautious regional market.

He said average daily trading volume increased to 1.7 billion shares worth RM2 billion as compared to the previous week of 1.3 billion shares worth RM1.5 billion suggesting rising distribution. “Foreigners had ended their 4-day net buying spree by having a total net outflow of RM62 million.

“Both Stochastic and RSI indicator and all major moving averages have turned down supporting further consolidation.

“With rising downside momentum and a bearish pattern of head & shoulder completed, the FBM KLCI is expected to extend losses and hit down to the next support areas of 1,660 and 1,650 levels respectively,” he said.

Nazri said that overall, with sign that the ringgit and crude oil prices could soften further in the near term, he reiterated his view that the local bourse is likely consolidate further until the Fed interest rate hikes start and normalise.