AFTER a decline two weeks ago, the FBM KLCI found support in the past week and traded sideways. A weak ringgit and declining crude oil prices weighed down the local market despite strongly bullish foreign market performances. The index is currently testing the 1,780-point support level as we expected last week, and the index’s performance last week provides the evidence of support at this level. The KLCI declined marginally to 1,787.87 points yesterday after trading in a tight range between 1,774.3 and 1,789.92 points.
Trading volume increased significantly last week but was dominated by penny stocks, which are normally traded by the retail market. Average daily trading volume was 2.7 billion shares in the past week compared with 2.2 billion shares two weeks ago. However, the average trading value was only RM2 billion. Selling by foreign institutions was stronger than in the previous week, possibly due to a weak ringgit. Net selling from foreign institutions last week (Monday to Friday) was RM1.16 billion while net buying from local institutions was RM1.13 billion.
On the KLCI, decliners marginally outpaced gainers eight to seven. The top three gainers were YTL Corp Bhd (+2.6% from last week), Genting Malaysia Bhd (+2.2%) and Astro Malaysia Holdings Bhd (+2.0%). The top three decliners in the index were Felda Global Ventures Holdings Bhd (-4.1%), SapuraKencana Petroleum Bhd (-3.8%) and Petronas Chemicals Group Bhd (-1.9%).
Markets in Asia were strongly bullish but Southeast Asian markets were uncertain in the past week. The Shanghai Stock Exchange Composite Index rose 6.6% in a week to 3,503.73 points, the highest level in nearly seven years. Japan’s Nikkei 225 increased 4.1% to 19,437 points, the highest level in 15 years. Hong Kong’s Hang Seng Index increased marginally to 23,901.49 points. Singapore’s Straits Times declined 0.8% to 3,369.95 points.
Markets in Europe were spooked by a strong decline early last week but rebounded to cover some losses. On Monday, the US Dow Jones Industrial Average declined marginally in a week to 17,977.42 points, but that after rebounding from a low of 17,620 points. London’s FTSE100 index declined 1.1% in a week to 6,803.28 points after rebounding from a low of 6,693.80 points. However, Germany’s DAX Index continued to increase to record highs, rising 5% in a week to a record close at 12,167.72 points.
The US dollar continued to strengthen to a 12-year high, increasing from 99.18 points a week ago to 100.04 points. However, the ringgit managed to hold against the US dollar, strengthening from 3.71 to a US dollar to 3.69. Gold and crude oil prices continued to be pressured by a strong US dollar. Commodity Exchange gold declined 1.1% in a week to US$1,153.80 (RM4,257.52) an ounce. Brent crude oil declined 7.8% to US$53.94 per barrel. Crude palm oil futures on Bursa Malaysia fell 4.4% in a week to RM2,140 per tonne on weak demand and falling crude oil and soyoil prices.
The KLCI remained bearish below the short-term 30-day moving average. However, the KLCI is right above the Ichimoku Cloud indicator that indicates that there is still support, unless the index falls below the cloud. The support level for the cloud is between 1,860 and 1,780 points. Furthermore, the index also managed to stay above the 1,780-point support level despite falling below this a few times in the past week.
Momentum Oscillators remained below their mid-levels as the index was directionless, which indicates that the bears are still in control. Furthermore, the bands in the Bollinger Bands indicator are still expanding with the index trading near the bottom band. However, the RSI and Momentum Oscillator indicators moved sideways and this indicates a weak bearish momentum. The index has to break above the immediate resistance level 1,790.0 points to turn bullish.
There is a high chance for the index to rebound above the immediate resistance level. The strong rebound of the Dow Jones indicates that the US Federal Reserve may not raise a key interest rate which is friendly to the equity markets. If the index can break above the immediate resistance level, then we may see it rally to the next resistance level at 1,820 points. Furthermore, the local market is oversold compared with the regional markets and hence a rebound is likely. However, the index may still be weighed down by falling crude oil prices and a weak ringgit. A breakout below the immediate support level at 1,774 points could point the index lower, and the next support level can only be found at 1,680 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 March 18, 2015.