A SURPRISE move by China to lower key interest rates last Friday caused markets including Bursa Malaysia to rebound strongly on Monday.

The bullish momentum continued yesterday, but in a more cautious mode, as the market paused to evaluate the extent of China’s move on the equity markets. The FBM KLCI rose 1.1% in a week to 1,838.56 points yesterday.

Global markets were also in a bullish mode in the past week as investors look towards more monetary easing from other countries, especially Europe, to support the fragile economy.

The market went into bargain hunting in the past week ahead of the Umno general assembly, and in anticipation of a year-end window dressing. Average daily trading volume in the past week has increased to two billion shares as compared to 1.6 billion shares two weeks ago. The average daily trading value in the past week was unchanged from the previous week at RM2 billion.

Local retail remained as the net buyers last week (last Monday to last Friday). Local institutions’ net selling was RM11 million and foreign net selling was RM141.6 million. In the KLCI, gainers out-paced decliners 11 to 3. Gainers were led by SapuraKencana Petroleum Bhd (+6.2%), Tenaga Nasional Bhd (+5.3% from last week) and Astro Malaysia Holdings Bhd (+4.8%), and decliners in the index were led by Petronas Dagangan Bhd (-9.4), CIMB Group Holdings Bhd (-6.5%) and Kuala Lumpur Kepong Bhd (-4.7%).

Markets in Asia were bullish in the past week, led by China. China’s Shanghai Stock Exchange Composite increased 4.5% in a week to 2,567.60 points yesterday, the highest in nearly three years. Japan’s Nikkei 225 increased only 0.4% in a week to 17,407.62 points, still trading near its seven-year high. Closer to home, Singapore’s Straits Times Index increased 0.9% in a week to 3,344.99 points. Hong Kong’s Hang Seng Index rose 1.3% to 23,843.91 points.

Markets in the West continued to be bullish after a break two weeks ago. On Monday, the US Dow Jones Industrial Average increased 1% in a week to 17,817.90 points, a record close. London’s FTSE100 Index increased 0.9% in a week to 6,729.79 points and Germany’s DAX, which pulled back last week, jumped 5.1% in a week to 9,785.54 points. The US dollar index, that measures the US dollar against a basket of major currencies, increased from 88.01 points a week ago to 88.21 points.

Prices of commodities ended up mixed. Price of gold continued its bullish momentum albeit a weaker increase. Commodity Exchange gold increased only 0.9% in a week to US$1,197.7 (RM4,012) an ounce. Nymex WTI crude oil was almost unchanged at US$75.46 per barrel as compared with the previous week. Crude palm oil (CPO) continued to decline last week on weak demand despite a slightly weaker ringgit. CPO futures in Bursa Malaysia declined 1.5% in a week to RM2,218 per tonne. The ringgit was slightly weaker against the US dollar at RM3.36 per dollar as compared to RM3.35 a week ago.

In my previous article, I mentioned that the KLCI is likely to rebound but may be capped at the immediate resistance level at 1,830 points. However, the surprise China interest rate cut boosted the rebound. The index rose above the short-term 30-day moving average (MA). However, the trend is still bearish in the longer term — the  KLCI is still below the long-term 200-day MA and the downtrend resistance line. The MA and the downtrend line is at 1,850 points.

The current short-term rally after a rebound two weeks ago shows good bullish momentum. Momentum indicators like the RSI and the Momentum Oscillator are above its mid level and climbing higher. Furthermore, the MACD has crossed above its MA and this indicates that the bullish momentum is strengthening. In addition, the Bollinger Bands are seen expanding and the index is above the middle band of this indicator. All these indicators show that the trend is likely going to continue.

The bullish momentum is likely to continue this week and the KLCI is expected to test the 1,850 points resistance level. As long as the index is able to stay above 1,830 points, we expect the trend to remain bullish till the end of the year as we also expect a year-end window dressing. However, if the index fails to hold above 1,830 points, then we may expect further sideways correction. Crucial support level for the KLCI is at 1,760 points, which is the confirmation level of a bearish reversal chart pattern called the “head and shoulders”.
 

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.

This article first appeared in The Edge Financial Daily, on November 26, 2014.