Technical rebound on bargain hunting

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THE market continued to be bearish towards the end of last week but rebounded last Friday as investors took advantage of rebounds in the global markets to bargain hunt.

The benchmark FBM KLCI closed marginally lower at 1,796.22 points from last week after rebounding from a low of 1,766.22 points. However, the market is still technically in a downtrend despite the rebound. The market sentiment was bullish on modest economic growth data in China but cautious on Tuesday about concerns over the momentum of China’s economic growth.

Average daily trading volume in the past one week was higher than the previous week at 2.3 billion compared with 2.1 billion shares in the previous week. Average daily trading value rose to RM2.4 billion from RM2.1 billion. Total market valuation declined marginally from RM1,706 billion to RM1,705 billion. Support came from local institutions as foreign institutions continued their selling spree.

Net buying from local institutions last week was RM584.3 million. Foreign institutions’ net selling was RM544.5 million while retail net selling was RM39.8 million. In the FBM KLCI, the number of gainers and decliners were equal. Gainers were led by Maxis Bhd (+2.3%), IHH Healthcare Bhd (+2.1%) and AMMB Holdings Bhd (+1.7%) while decliners in the index were led by Felda Global Ventures Holdings Bhd (-6.1%), Petronas Chemicals Group Bhd (-3.6%) and RHB Capital Bhd (-2.4%).

Global markets rebounded after a bearish market in the earlier part of the week and ended up mixed. Singapore’s Straits Times Index rose 0.2% in a week at 3,202.74 points. The Hang Seng Index rebounded last week after a sell-off before the holidays caused by the ongoing pro-democracy protest. The Hang Seng Index, increased 0.2% in a week to 23,088.58. However, China’s Shanghai Stock Exchange Composite remained bearish and declined 0.8% in a week to 2,339.66 points. Japan’s Nikkei 225 fell 0.9% in a week to 14,804.28 points.

Markets in Europe were bearish in the past one week and the United States market was buoyant. On Monday, the US Dow Jones Industrial Average rose 0.5% in a week to 16,399.67 points. London’s FTSE100 Index declined 1.5% in a week to 6,267.07 points. Germany’s DAX fell only 0.3% to 8,784.30. The US Dollar Index declined to 85.04 points from 85.72 points last week.

Gold prices extended its bullish trend as equity markets were uncertain and the US dollar weakened. The Commodity Exchange gold rose 0.8% in a week to US$1,247.20 (RM4,070) an ounce. Crude oil remained bearish and fell to two-year lows. Nymex WTI crude oil declined 3.7% to US$81.85 per barrel. Crude palm oil (CPO) remained bearish after a pullback two weeks ago as demand weakens in October. CPO futures on Bursa Malaysia fell 2.1% in a week to RM2,136 per tonne. The ringgit was firm at RM3.27 from the previous week.

The index rebounded prematurely as we expected the support to come only at 1,750 points. However, the rebound is weak unless the index can stay above 1,800 points in the short term. The trend remained bearish below the 30-day moving average. In fact, it did not even manage to break above the 10-day moving average. The market is worried as the rebound may be a “dead cat bounce” and is very cautious hence resulting in a pullback on Monday.

Momentum indicators like the RSI, Momentum Oscillator rebounded but remained below their mid-levels. The MACD indicator is still below its short-term average or trigger line. Furthermore, the index is still trading below the middle band of the Bollinger Bands. These indicators indicate that the market momentum is still bearish and a further increase is needed to build up market confidence.

Last week, we mentioned that if history does repeat itself, then we may see a further downside. Support level is at 1,750 points and has the potential to even fall to 1,600 points if the governments, particularly the US, decide to tighten its money supply and raise interest rates. Technically, the FBM KLCI is expected to remain bearish if it is unable to stay above 1,800 points and break above 1,820 points.

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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 October 23, 2014.