This article first appeared in The Edge Financial Daily, on October 21, 2015.

In a few more days, Budget 2016 will be tabled and the market is expecting the budget to address economic growth. However, this expectation started two months ago as we had seen a 13% increase in the FBM KLCI and the strengthening of the ringgit. Therefore, the events may have already been priced in. 

Last week, we expected the market to pull back for a correction and the index did decline. However, the decline was marginal. The KLCI declined only 0.4% in a week to 1,705.03 points yesterday. The ringgit also weakened against the US dollar.

Trading volume has slightly increased. The daily average volume in the past one week was 2.5 billion shares as compared to 2.4 billion shares two weeks ago. However, the average trading value declined from RM2.6 billion two weeks ago to RM2.3 billion last week, and this indicates that the focus shifted to lower-cap stocks.

The ringgit weakened from RM4.14 to a US dollar last week to 4.28 yesterday. However, buying from foreign institutions continued last week. From last Monday to Friday, net buying from foreign institutions was RM412 million, and net selling from local institutions and local retail was RM394 million and RM18 million respectively. 

On the KLCI, decliners outpaced gainers 2 to 1. The top gainers were Hong Leong Bank Bhd (+2.3% from last week), MISC Bhd (+1.8%) and IHH Healthcare Bhd (+1.1%). Top decliners were IOI Properties Group Bhd (-5.8%), UMW Holdings Bhd (-4.6%) and Genting Bhd (-4.4%).  

Markets in Asia were bullish for the second week. China’s Shanghai Stock Exchange Composite Index rose 4% in a week to 3,424.33 points. Hong Kong’s Hang Seng Index increased 1.7% to 22,989.22 points and Singapore’s Straits Times Index rose 1.2% to 3,019.03 points. However, Japan’s Nikkei 225 Index declined 0.2% in a week to 18,207.15 points.

Markets in the United States and Europe were bullish but weak. On Monday, the US Dow Jones Industrial Average increased only 0.6% in a week to 17,230.54 points. Germany’s DAX Index rose 0.4% to 10,164.31 points, but London’s FTSE 100 Index declined 0.4% in a week to 6,349.35 points.

The US dollar index futures increased marginally from 94.8 points a week ago to 95 points on Monday. Commodities were directionless. Comex gold price increased 1% in a week to US1,173.80 (RM5,000.39) an ounce. West Texas Intermediate crude oil declined 1.7% in a week to US$46.57 per barrel. Crude palm oil on Bursa Malaysia declined only RM3 in a week to RM2,320 per tonne.

The KLCI pulled back from its highest level in two months. Technically, the index is bullish above the short-term 30-day moving average and the Ichimoku Cloud indicator. The short-term 30-day moving average is at 1,650 points, and hence the index is slightly overbought. The Stochastic indicator is at an overbought level. However, the index is still below the long-term 200-day moving average, which is currently at 1,740 points. 

The RSI, MACD and Momentum Oscillator indicators finally declined after three weeks of increase. This indicates that momentum is weak as the index faces resistance. The directionless movement in the past one week with high volume also indicates resistance or stronger selling pressure. Furthermore, the index has started to pull back from the top band of the Bollinger Bands indicator.

The pullback last week was probably just the beginning of a downward correction. The selling pressure only started yesterday, and we expect the market to continue to decline this week ahead of the budget. The support level is at 1,650 points. However, the trend is still bullish and opportunities may arise after the pullback. Henceforth, we suggest staying out of the market until the market correction is over and the chart shows signs of a good reversal.

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.