This article first appeared in The Edge Financial Daily, on March 9, 2016.

We mentioned  last week that the market is set to rebound and with the help of a stronger ringgit, higher crude oil prices, and generally bullish global market performances, the FBM KLCI rose 1% in a week to 1,687.86 points. However, the index seems to be facing resistance at 1,710 points as it pulled back yesterday after testing the resistance level on Monday. The ringgit strengthened against the US dollar from 4.17 a week ago to 4.10.

Trading volume started to increase last week. The average daily trading volume in the past week was two billion shares compared with 1.7 billion shares two weeks ago. Average trading value also increased from RM2 billion to RM2.3 billion.

Foreign institutions continued to be the main bullish driver of Bursa Malaysia. Net buying from foreign institutions (from Monday to Friday last week) was RM972 million. Net selling from local institutions and local retail were RM820 million and RM152 respectively.

For the FBM KLCI, gainers outpaced decliners three to one. The top gainers for the week were SapuraKencana Petroleum Bhd (+7.6% in a week), RHB Capital Bhd (+6.1%) and Maxis Bhd (+2.9%). Top decliners were Genting Malaysia Bhd (-1.6%), British American Tobacco (M) Bhd (-1.4%) and Telekom Malaysia Bhd (-0.9%).  

Markets in Asia were generally bullish, led by China, but the pullback in the past two days erased some gains. China’s Shanghai Stock Exchange Composite Index rose 6.1% in a week to 2,899.91 points. Hong Kong’s Hang Seng Index increased 3.1% to 20,011.58 points and Singapore’s Straits Times Index rose 3.6% to 2,778.77 points. Meanwhile, Japan’s Nikkei 225 Index increased 4.3% in a week to 16,783.15 points.

The bulls were back in the US and European markets after a correction two weeks ago. The US Dow Jones Industrial Average increased 3.4% in a week to 17,073.95 points on Monday, the highest in two months. Germany’s DAX Index rose 3% in a week to 9,778.93 points, and London’s FTSE 100 Index rose 1.4% to 6,182.4 points, also on Monday.

The US dollar weakened in the last week. The US dollar index fell from 98.2 points a week ago to 97.1 points on Monday. The Commodity Exchange gold also increased despite a stronger US dollar. The price increased 2.3% to US$1,268.00 an ounce in a week, the highest in 13 months. West Texas Intermediate crude oil jumped 12% in a week to US$37.98 per barrel, the highest in three months. Crude palm oil on Bursa Malaysia was directionless again and closed 0.3% lower from last week at RM2,529 per tonne yesterday.

The FBM KLCI is technically bullish above the short- and long-term 30-day and 200-day moving averages. The index also broke above the downtrend resistance line (R1 on the chart). Furthermore, the index is also above the Ichimoku Cloud indicator. The bullish trend, however, faced resistance at 1,710 points. The pullback yesterday formed a bearish reversal Japanese candlestick pattern called the “engulfing” bear. Support of confirmation of the engulfing bear pattern is at 1,684 points.

The bullish trend is strongly bullish according to the momentum indicators. The Relative Strength Index indicator is above its mid-level and the moving average convergence divergence indicator is above its moving average. Furthermore, the FBM KLCI is above the middle band of the Bollinger Bands indicator. However, further declines in the index may cause these indicators to pull back and momentum becomes weak.

If the FBM KLCI does not rebound from current levels, we may see further declines. Support level is at 1,684 points and if this level is broken, then we expect the index to test the 1,655 and 1,660 support levels, based on the 30-day moving average, short-term uptrend support line (S1 on chart) and the Ichimoku Cloud. If it stays above the support level, expect the index to trend sideways between 1,685 and 1,710 points.

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.