This article first appeared in The Edge Financial Daily on December 4, 2019

The FBM KLCI started to rally in the beginning of October on expectations of better quarterly earnings. However, the bullish momentum stalled in mid-November as quarterly reports started coming in and were below expectations. The sentiment was further dampened by mixed global market performances.

The benchmark KLCI fell 2.2% in a week to 1,561.74 points last Friday. The bearish momentum has continued this week, though the index closed at 1,562.27 points yesterday.

Trading volume was firm last week, compared with the previous week’s. The average daily trading volume was 2.8 billion shares. However, the average daily trading value increased to RM2.3 billion, compared with RM1.9 billion two weeks ago. After the market was dominated by lower-capped stocks for weeks, higher-capped stocks were in focus last week.

For the KLCI, only two out of 30 counters closed higher in a week. The two gainers were Hong Leong Bank Bhd (+1% in a week to RM16.90) and Malaysia Airports Holdings Bhd (+0.1% to RM8.30). The top three decliners were Petronas Gas Bhd (-5.5% to RM15.50), Axiata Group Bhd (-5.3% to RM4.13) and Petronas Dagangan Bhd (-5% to RM22.90).

Global market performances were mixed. Asian market indices closed mostly lower, except for Japan, while most US and Western markets closed higher.

The US dollar was firmer against major currencies last week. The US Dollar Index was at 98.3 points last Friday. The ringgit was also firm at 4.17 to the greenback last Friday.

The gold price started to slightly increase on uncertainty in the equity market. Commodity Exchange gold futures rose 0.8% in a week to US$1,472.70 (RM6,141.16) an ounce last Friday. Brent crude oil, however, fell 1.9% to US$62.43 per barrel. In the local market, crude palm oil (BMD) closed almost unchanged in a week at RM2,744 per tonne last Friday.

The KLCI finally broke the support level of the sideways correction trading range, indicating that the market’s sentiment was bearish. The next support level is at 1,500 points, which will be the lowest level in eight years.

Technically, the KLCI turned bearish after it failed to climb above the long-term 200-day moving average despite the rally in October. The index also failed to climb above the Ichimoku Cloud indicator despite testing it in the past three weeks. The index was also below the short-term 30-day moving average.

Momentum indicators like the Relative Strength Index and Momentum Oscillator fell below their mid-levels last week, indicating that the bearish trend momentum was gaining traction. Furthermore, the Moving Average Convergence Divergence indicator was below its moving average and declining.

The market had expected window dressing since early October but the failure to rally dampened such hopes. Earnings reports fell within and slightly below expectations. The increase in trading value may have also indicated distribution from institutional investors.

Hence, the index may continue to decline and the immediate technical support level can be found at 1,550 points. If there is no rebound from this level, the index may fall further to the next support level of 1,500 points. There is a high chance of this happening if the index stays below 1,585 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 investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.