Market showing signs of reversal

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THE market rebounded just as we expected last week after testing the 1,710-point support level. The support came from local institutions and retail as foreign institutions continue to sell on weak Malaysian ringgit, which has fallen to 5½ year lows against the US dollar. Another contribution to the increase in the index was a 14% increase in FBM KLCI component stock heavyweight CIMB Group Holdings Bhd (CIMB) share prices yesterday after the merger among Malaysia Building Society Bhd, RHB Capital Bhd (RHBCap) and CIMB may be called off. The FBM KLCI rose 1.9% in a week to 1,748.90 points yesterday after rebounding from a low of 1,706.18 points last Wednesday.

Trading volume on Bursa Malaysia increased as the market started to pick up some bargains. The average daily trading volume in the past one week was 1.7 billion shares  compared with 1.4 billion shares in the previous week. The average daily trading value in the past one week increased to RM1.9 billion compared with RM1.5 in the previous week.

Net selling from foreign institutions was RM535.1 million (last Monday to last Friday). Net buying from local institutions and local retail were RM433.4 million and RM101.8 million respectively. In the FBM KLCI, gainers trounced decliners four to one. The top three gainers were CIMB (+10.9% from last week), SapuraKencana Petroleum Bhd (+6.1%) and RHBCap (+5.5%) while decliners were led by IOI Properties Group Bhd (-8.5%), Petronas Dagangan Bhd (-2.7%) and Malayan Banking Bhd (-2%).

Global markets were mixed. China’s Shanghai Stock Exchange Composite pulled back from its five-year high and declined 3.5% in a week to 3,236.40 points. Japan’s Nikkei 225 index rebounded and increased 1.2% in a week to 17,087.71 points. Hong Kong’s Hang Seng Index increased 3.1% in a week to 24,215.97 points, the highest in nearly four months. Singapore’s Straits Times Index rose 1.7% to 3,338.97 points.

On Monday, the US Dow Jones Industrial Average rebounded and closed 0.8% higher in a week at 17,640.84 points. London’s FTSE100 Index increased 1.3% in a week to 6,493.74 and Germany’s DAX Index rose 3.3% to 9,781.90 points. The US dollar index continued to increase to nine year highs at 92.18 points from 91.62 points a week ago. The Malaysian ringgit weakened from RM3.56 per US dollar a week ago to RM3.59.

Gold continued to increase on market uncertainty and climbed to its highest level in two months. Commodity Exchange gold increased 2.3% in a week to US$1,233.40 (RM4,404) an ounce. However, crude oil continued to decline for its fourth consecutive week. WTI crude fell 8.4% in a week to US$45.71 per barrel, the lowest level in nearly six years. Crude palm oil (CPO) increased on a weak ringgit and low output of palm oil for the month of December. CPO rose 3.1% in a week to RM2,354 per tonne yesterday.

The FBM KLCI broke above the short-term 30-day moving average yesterday. This is an indication of a possible trend reversal. However, it is still early to conclude that the bearish trend is over as the index needs to break above the immediate resistance level that we mentioned a week ago at 1,765 points. Furthermore, the index is still below the Ichimoku Cloud indicator. A break above the immediate resistance level could change the bearish indication.

Most momentum indicators such as the RSI and Momentum Oscillator have rebounded to its middle levels. This is another indication of a possible reversal. Furthermore, the FBM KLCI has climbed above the middle band of the Bollinger Bands indicator. Therefore, the momentum indicators are also at a crossroads. The index is either going to climb higher and break above the immediate resistance level or the bears may take the opportunity of the current rebound to start selling again.

We expect the index to test the immediate resistance level at 1,765 points this week. At the moment, it is still best to remain cautious and not to be too anxious about the current rebound. There is not much improvement on the market sentiment, unless the index can break and stay above the immediate resistance level.

Failure to break above this level would send the index back to test the immediate support level at 1,710 points. Fundamentally, falling crude oil prices and a weakening ringgit may still weigh down the market.

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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 January 14, 2015.