Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on March 18, 2020

There was blood on the streets of global financial markets last week. Casualties were not only equity markets but commodity markets including gold and cryptocurrencies. A plunge in crude oil prices and exponential growth of Covid-19 continued to drag markets down to multi-year lows. Many markets including the US hit lower-limit circuit breakers a few times last week. It was volatile.

The decline last week was one of the worst since the sub-prime mortgage crisis in 2008. The FBM KLCI fell 9.3% in a week to 1,344.75 points last Friday. The market continued to fall this week after the US cut interest rates and the index closed at 1,256.58 points yesterday, a 10-year low.

Trading volume surged on Bursa Malaysia amid panic selling. The average daily trading volume jumped to 5.1 billion shares last week, compared with 3.2 billion two weeks ago. The average daily trading value increased to RM3.6 billion, compared with RM2.5 billion, indicating that more lower-capped stocks, favoured by retail participants, were being traded.

For the KLCI, only one counter rose last week. The only gainer was Top Glove Corp Bhd (+4% in a week to RM6.24). The top three decliners were Petronas Chemicals Group Bhd (-22.5% to RM4.38), Press Metal Aluminium Holdings Bhd (-19.5% to RM3.79) and Hap Seng Consolidated Bhd (-16.9% to RM7.70).

Global markets ended in a sea of red. Most markets fell with a double-digit percentage. The US Dow Jones Industrial Average fell 21.5% from its peak in just a month. European and US markets have fallen more than 20% year to date (YTD). The KLCI has fallen 15.4% YTD. Ironically, the Shanghai Stock Exchange Composite fell the least last week and YTD.

The US dollar strengthened against major currencies last week after the US Federal Reserve (Fed) said it would pump US$1.5 trillion (RM6.51 trillion) into the American financial system to stop markets from freezing up. The US Dollar Index increased to 98.7 points last Friday from 96 points two weeks ago. The ringgit weakened to 4.28 against the greenback last Friday, compared with 4.17 the previous week, the weakest since August 2017.

Crude oil plunged 23.3% in a week to US$34.72 per barrel last Friday. The price has fallen 47.4% YTD. Crude palm oil declined 7% in a week to RM2,278 per tonne, the lowest since October 2019. The price has fallen 25% YTD. Gold declined 8.6% to US$1,529.10 an ounce and that price was almost the same as at the beginning of the year.

The KLCI fell below the immediate technical support level at 1,350 points, now testing the next support level at 1,250 points.

Technically, the trend was strongly bearish below the short- and long-term 30-day and 200-day moving averages. The short-term trend has been technically bearish since early this year and the long-term trend has been bearish since November 2018. Furthermore, the KLCI was below the Ichimoku Cloud indicator and the Cloud continued to decline, indicating a strong downtrend.

Momentum indicators indicated a strong bearish trend. Indicators like the Relative Strength Index and Momentum Oscillator continued to fall and were at oversold levels. Furthermore, the Moving Average Convergence Divergence indicator was below its moving average.

We have seen the market in a downtrend since November 2018 and any rebound attempt was greeted by more selling pressure. However, the plunge in crude oil prices and Covid-19 fears have accelerated the selling pressure since the beginning of this year.

The market was still incredibly uncertain and governments would not be able to stand still trying to figure out how to stabilise the panic in the markets. Lowering interest rates did not seem to provide any confidence. The US$1.5 trillion injection promised by the Fed may provide some support to the markets but will it be able to turn the markets around? Only time will tell. One thing is for sure: The market is going to remain volatile.

The market may rebound as the index was at oversold levels. However, the market would still be in bearish mode unless there is a significant rebound. The short-term 30-day moving average was at 1,500 points, so go figure. If the index cannot even rebound above 1,350 points, then further decline is expected. 1,100 points is possible based on the long-term double-top chart pattern formation.


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.

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