AFTER seven days of consecutive gains, the FBMKLCI pulled back in the last two days on profit taking. The pull back also happened once the index tested a technical resistance level at 1,858 points. Despite the decline, the FBMKLCI still closed 1.2% higher in a week at 1,847.36 points. The market continued to be supported by the plantation sector as crude palm oil prices turned bullish. Foreign institutions, which have been selling in the past weeks, started to come back although the ringgit continued to weaken.
Trading volume has increased as market confidence grew stronger after a strong rebound two weeks ago. Average daily trading volume in the past one week was only 2.2 billion shares compared with 1.9 billion shares in the previous week. Average daily trading value rose to RM2.3 billion, higher than the RM1.9 billion two weeks ago. This indicates that higher priced stocks were mostly traded. Retail participation was still weak. Total market valuation increased RM30 billion from last week to RM1,771 billion.
Foreign institutions were net buyers last week at RM460 million. Local institutions’ net selling was RM352.1 million while retail net selling was RM107.9 million. In the FBMKLCI, gainers out-paced decliners 19 to 7. Gainers were led by PPB Group Bhd (+6.9%), Telekom Malaysia Bhd (+5.9%) and IOI Properties Group Bhd (+5.3%) while decliners in the index were led by UMW Holdings Bhd (-5%), YTL Corporation Bhd (-4.1%) and Sapura Kencana Petroleum Bhd (-3.5%).
Asian markets extended their bullish momentum and generally closed higher although the markets pulled back in the past one or two days. The market was led by China and Japan. Singapore’s Straits Times Index increased 2.2% in a week to 3,281.57 points. Hong Kong’s Hang Seng Index rose 1.4% in a week to 23,845.66. China’s Shanghai Stock Exchange Composite jumped 4.3% to 2,430.74 points, the highest level in 20 months. Japan’s Nikkei 225 rose 10% in a week to 16,862.47 points after its central bank expanded its bond-buying programme.
Markets in US and Europe were also bullish. On Monday, the US Dow Jones Industrial Average increased 3.3% in a week to 17,366.24 points after it pulled back marginally from its record close at 17,390.52 points last Friday. London’s FTSE100 Index rose 2.9% in a week to 6,546.47 points and Germany’s DAX increased 3.9% to 9,251.7 points. The US Dollar Index rose from 85.56 points a week ago to 87.41 points, the highest level in more than four years.
Commodities slumped on strong US dollar and equity markets. COMEX gold fell 4.9% in a week to US$1,165.30 (RM3,868.80) an ounce. NYMEX WTI crude oil fell 3.1% in a week to US$78.20 per barrel. Crude palm oil futures on Bursa Malaysia continued its bullish momentum and rose 4.2% in a week to RM2,306 per tonne. The Malaysian Ringgit was weaker against the US dollar at RM3.33 per dollar compared with RM3.27 a week ago.
The FBMKLCI remained in a bullish mode in the short term as it continued to be above the short-term 30-day moving average. However, the index is below the long-term 200-day moving average but is currently testing this level. It has also tested the down trend line resistance line, which is currently at the same level as the 200-day moving average. The Ichimoku Cloud is also at this resistance level. The market is not ready to climb above the resistance levels and started to take profits, hence the pull back.
Momentum indicators show strong bullish momentum. The RSI indicator hooked down because of the declines in the past two days but the Momentum Oscillator continued to rise. The MACD indicator is also rising and above its 9-day moving average. However, the index is at overbought levels in the short term and this prompted the profit-taking activity.
Market confidence will be stronger if the resistance level can be broken. The index would be above the long-term 200-day moving average and the Ichimoku Cloud indicator. If this happens, we may see the index climbing to historical highs this year. This week, we may see market moving into a correction mode. The market needs stronger catalyst to take higher risks in a market that is overbought in the short term. At the moment, we do not see them. The FBMKLCI is expected to trade between 1,840 and 1,860 points.
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 5, 2014.