FBM KLCI Sideways correction expected

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Daily FBMKLCI chart as at 22 August 2014 using Next VIEW Advisor Professional

The bullish momentum continued last week was as expected but it pulled back on Thursday after the market recorded an exceptionally high trading volume on Wednesday. The market was bullish earlier this week on better than expected economic growth in the second quarter according to Bank Negara Malaysia. The central bank said that Malaysia’s gross domestic product (GDP) grew 6.4 per cent, higher than a Reuters poll of economists whom have expected the country’s GDP growth to slow to 5.8. However, I believe that many who have bought earlier, especially two weeks ago as it took the opportunity to book profits after last Tuesday and Wednesday’s frenzy especially in the retail market.

The benchmark FBM KLCI managed rise 0.4 per cent in a week 1,870.99 points after pulling back from a high 1,879.62 points. Average daily volume jumped to 4.6 billion shares last week as compared to 3.5 billion shares two weeks ago. Trading volumes on Tuesday and Wednesday were 5.3 and 7.8 billion shares, respectively. However, average trading value only increased RM0.2 billion to RM2.6 billion and hence showing that the trades were mostly on penny stocks. Low priced stocks were volatile last week. Total market valuation increased only RM3 to RM1,790 billion from the previous week.

Local market was net sellers last week and support came from foreign institutions. Net buying from foreign institutions was RM202.8 million and net selling from local institutions and local retail were RM80.1 and RM122.7 respectively. In the FBM KLCI, gainers only managed to outpace decliners 16 to 13. Top gainers in the index were led by PETDAG (5.3 per cent), UMW (4.9 per cent) and SKPETRO (2.9 per cent) and decliners were led by IOICORP (5.2 per cent), KLK (3.3 per cent) and GENTING (2.8 per cent)

Bullish momentum continued across global markets. Singapore’s Straits Times Index rose 0.3 per cent in a week to 3,325.50 points. Hong Kong’s Hang Seng Index increased 0.6 per cent in a week to 25,112.23 points, near four year highs and China’s Shanghai Stock Exchange Composite Index also increased 0.6 per cent to 2,240.81 points. Japan’s Nikkei 225 increased 1.4 per cent in a week to 15,539.19 15,318.34 points. On Thursday, the US Dow Jones Industrial Average increased 1.9 per cent in a week to 17,039.49 points. London’s FTSE100 Index rose 1.4 per cent in a week to 6,777.66 points while Germany’s DAX increased 1.9 per cent in a week to 9,401.53 points.

US dollar finally continued its up trend after trending sideways for two weeks. The US dollar index rose from 81.65 points to 82.21 points. Stronger US dollar and equity markets continue to put pressure on gold prices. COMEX gold declined 2.8 per cent in a week to 1,276.40 an ounce. Crude oil also decline, closing 1.7 per cent in a week to US$93.90 per barrel. Crude palm oil remained very bearish on high supply and weak demand. Bursa Malaysia crude palm oil futures fell 4.5 per cent in a week to RM2,000 per metric tonne, the lowest level in five years.

The Malaysian ringgit strengthened to RM3.164 per US dollar from RM3.175 in the previous week.

The price pulled back to the short term 30-day moving average it broke two weeks ago and this indicates that the trend is still bullish.

The FBM KLCI tested the resistance level of the Ichimoku Cloud and pulled back. This indicates that there is still some selling pressure. The index should remain bullish if it can stay above the immediate support level at 1,860 points. Immediate resistance is at 1,880 points.

Momentum indicators like the RSI and MACD indicators still indicate that the trend is bullish. The RSI indicator maintained above its mid-level despite the pull back and the MACD indicator continued to increase and stay above its nine-day moving average or trigger line. Furthermore, the index remained above the middle band of the Bollinger Bands indicator.

The market could continue its bullish trend after the correction is over. Like I have mentioned previously, the FBM KLCI trend should remain bullish as long as it stays above the immediate support level at 1,860 points.

The bullish performances in global equity markets could increase local market confidence. We may continue to see active trading in penny stocks but we’d probably see more selling towards the end of the week. For this week, I expect the index to continue trading in a range between 1,860 and 1,880 points.

The above commentary is solely used for educational purposes and is the contributor’s point of view using technical al 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 advisor.