Trend is bullish but may pull back

This article first appeared in The Edge Financial Daily, on September 5, 2018.
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The FBM KLCI climbed to its highest level in three months last week in a mixed global market on higher crude and crude palm oil prices. However, the last two trading days were directionless as the market started to take profits after the index rose to a three-month high. The FBM KLCI increased 0.6% in a week to 1,819.66 points last Thursday. Not much movement in the market this week and the index closed at 1,812.76 points yesterday.

Trading volume was significantly higher in a shorter week as last Friday was a public holiday. The average daily trading volume remained increased to 2.7 billion shares compared to 2.3 billion shares in the previous week. The average daily trading value rose to RM2.9 billion from RM2.6 billion.

Market participation continued to be mixed and balanced last week. Retailers were net buyers while both local and foreign institutions were net sellers. Net buying from local retailers was RM21 million while net wells from local and foreign institutions were RM6 million and RM15 million respectively.

For the FBM KLCI, gainers outpaced decliners eight to seven. The top three gainers were Hong Leong Financial Group Bhd (+7.2% in a week to RM19.62), Press Metal Aluminium Holdings Bhd (+4.2% to RM4.98) and Hong Leong Bank Bhd (+3.0% to RM20.56). The top three decliners were Telekom Malaysia Bhd (-7.8% to RM3.31), MISC Bhd (-2.0% to RM5.93) and Genting Bhd (-1.4% to RM8.62).

Markets performances were mixed last week. In Asia, most markets closed marginally higher in a week except for China which slightly declined. In Europe, most markets closed lower including London while the US market closed higher.

Most currencies held firm against one another last week. The US dollar index closed unchanged at 95.1 points last Friday. The ringgit was also firm against the US dollar at RM4.11 last Friday.

After a rebound two weeks ago, the Commodity Exchange gold price pulled back and declined 0.4% to US$1,206.90 (RM4,995.12) an ounce last Friday. Crude oil (Brent) gained for the second week, increasing 2.7% to US$77.45 a barrel. Crude palm oil futures rose 1.2% to RM2,245 per tonne last Thursday.

The FBM KLCI broke above the immediate resistance level at 1,811 points last Friday and stayed above it. The support level of the bullish trend is now at 1,794 points based on the 61.8% Fibonacci retracement level of the current short-term bullish trend. Next resistance level is at 1,850 points.

Technically, the FBM KLCI remained bullish above both the short-term 30- and 200-day moving averages last week. Furthermore, the FBM KLCI continued to stay above the wide Ichimoku Cloud indicator and moving forward, the Cloud is seen expanding upwards and this indicates a bullish future for the FBM KLCI.

Momentum indicators continued to rise last week. However, there is a bearish divergence on the Relative Strength Index and oscillator indicators against the FBM KLCI trend. While the index climbed higher than the high on Aug 10, the momentum failed to climb higher. This indicates that the bullish momentum is weakening. Furthermore, the momentum indicators also show that the index is slightly overbought.

The weak momentum of the bullish trend indicates that the index is due for a correction. The index may pull back to the support level at 1,794 points and if it can stay above this level, the bullish trend may continue towards the next resistance level at 1,850 points.

The above commentary is solely used for educational purposes and is the writer’s point of view using technical analysis. The commentary should not be construed as an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.