THE market rebounded earlier in the week but there was no strength. The FBM KLCI rose to a high of 1,874.67 points, near the immediate resistance level last week. However, the market pulled back and the KLCI closed 1.4% lower in a week to 1,847.30 points on Monday. The market was cautious about the economic development in Europe. The strong US dollar was predominantly caused by the weakening euro, hammered by worsening economic numbers and the further easing of the monetary policy by the European Central Bank in the past month. This caused the ringgit to weaken against the greenback.

The declining trading volume indicates market cautiousness. The average daily volume fell to 2.2 billion shares last week compared with 2.8 billion shares two weeks ago. Average trading value was RM2 billion compared with RM2.1 billion two weeks ago, and this indicates that there is a shift in the trading of lower cap stocks to higher cap stocks. Total market valuation fell RM6 billion from last week to RM1,772 billion.

Retail market confidence deteriorated and foreign institutions are not so keen as the ringgit weakened against the US dollar. Local institutions were net buyers last week at RM231.5 million. Foreign institutions and local retail players were net sellers at RM197.3 million and RM34.2 million respectively. For the KLCI, decliners outpaced gainers three to one. Gainers were led by IOI Properties Group Bhd (4.0%), YTL Corp Bhd (1.8%) and Axiata Group Bhd (0.7%) and decliners were PPB Group Bhd (-4.3%), Felda Global Ventures Holdings Bhd (-4.2%) and AMMB Holdings Bhd (-3.7%).

Markets were generally bullish in the past week, led by China. Singapore’s Straits Times Index declined 0.9% in a week at 3,312.47 points. Hong Kong’s Hang Seng Index declined 3.3% in a week to 24,356.99 points while China’s Shanghai Stock Exchange Composite Index rose only 0.5% in a week to 2,339.14 points, the highest level in 18 months. Japan’s Nikkei 225 rose 1.8% to 15,948.29 points, the highest level in eight months (markets closed for a holiday last Monday).

Markets pulled back in Europe and in the US as the US dollar remained buoyant. The US dollar index, which measures the US dollar against a basket of major currencies including the euro and pound sterling, increased from 84.37 points two weeks ago to 84.40 points. On Monday, the US Dow Jones Industrial Average declined only 0.5% in a week to 17,031.14 points. London’s FTSE100 Index declined 0.4% in a week to 6,804.21 points and Germany’s DAX Index declined 1% to 9,659.63 points.

Precious metals continued to decline on a strong US dollar but started to rebound in the past two days. Commodity Exchange gold declined 1.8% in a week to US$1,233.40 (RM3,982.65). Crude oil declined only 0.3% in a week to US$92.81 per barrel. Crude palm oil continued to increase after a rebound two weeks ago on stronger demand after the government provided export tax exemptions and a weaker ringgit. Crude palm oil futures on Bursa Malaysia increased 3.2% in a week to RM2,099 per tonne. The ringgit weakened against the US dollar from RM3.20 per US$1 a week ago to RM3.23.

The KLCI failed to turn bullish last week as it failed to break above the immediate resistance level at 1,880 points. The KLCI has been whipsawing against the declining short-term 30-day moving average in the past two weeks but started to decline and break below the moving average and the immediate support level at 1,860 points last week, indicating that the trend has turned bearish.

Momentum indicators like the RSI, MACD and Momentum Oscillator are showing that the bearish momentum is getting stronger. These indicators broke support levels and the MACD has also fallen below its moving average or trigger line. Furthermore, the KLCI has fallen below the bottom band of the Bollinger Bands indicator. Therefore, the strong selling pressure may cause the market to continue to decline in the short term.

The index failed to break above the immediate resistance level and broke below the support level instead. Technically, the KLCI is continuing its short-term downtrend while remaining bullish in the short term. The long-term 200-day moving average is at 1,850 points and this is where the KLCI is expected to retest. A break below the support range between 1,840 and 1,850 points could turn the long-term trend into a bearish one with the next technical support can only be seen at 1,800 points.
 

Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia committed to offering the best services to a wide range of customers. 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 September 17, 2014.