Market expected to be directionless

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Daily FBM KLCI chart as at March 13, 2015 using Next VIEW Advisor Professional

The market fell further into correction as expected on weak ringgit and falling crude oil prices. Continued selling from foreign institutions also weighed down the benchmark FBM KLCI.

In my last article, I mentioned that the index is likely going to test the 1,780 points support level. Last week, the FBM KLCI broke below the support level and fell to as low as 1,774.97 points but immediately rebounded above the support level. The index declined 1.4 per cent in a week to 1,781.75 points.

Trading volume was significantly higher last week as local retail start to heavily trade a handful of low-capped stocks while foreign institutions continue to sell. The average daily trading volume increased from 2.3 billion shares two weeks ago to 2.6 billion shares last week. Foreign institutions net selling was slightly over RM1 billion in the past one week (Monday to Thursday) and local institutions were the ones picking up.

Trading volume increased last week and this indicates that selling pressure is getting stronger. The average daily trading volume increased from 2.1 billion shares two weeks ago to 2.3 billion shares last week. Selling pressure comes from foreign institutions who were net sellers at RM349.3 million (from Monday to Thursday) and net buying from local institutions and local retail were RM291 million and RM58.3 million respectively.

In the FBM KLCI, only two out of the 30 counters increase and the increase was marginal. The two counters that increased were CIMB Group Holdings (1.7 per cent from last week) and Maxis Bhd (one per cent). Top three decliners in the index Petronas Chemicals Group Bhd (4.2 per cent), Genting Bhd (3.8 per cent) and IOI Corporation Bhd (3.6 per cent).

 

Regional indices

Markets performances in the Asian region were mixed. China and Japan continued its bullish trend after a correction two weeks ago while others continued to slide. Shanghai Stock Exchange Composite Index rose 4.1 per cent in a week to 3,373.79 points.

Japan’s Nikkei 225 continued to climb to its 15 year highs, rising 1.5 per cent in a week to 19,254.25 points. Hong Kong’s Hang Seng Index declined 1.4 per cent to 23,823.21 points while Singapore’s Straits Times Index fell 1.6 per cent to 3,362.77 points.

Wall Street was spooked possible hike in key interest rates on strong economic data but strongly rebounded to cover some losses. The Dow Jones Industrial Average declined 1.3 per cent in a week to 17,895.22 points. London’s FTSE100 declined 2.8 per cent to 6,762.94 points. However, European markets continued to enjoy the benefits of the quantitative easing measures. Germany’s DAX Index increased to another record breaking week, rising 2.5 per cent 11,799.39 points.

 

Commodities

The US dollar continued to strengthen, rising from 96.39 points a week ago to 99.82 points, the highest in 12 years. This caused the ringgit to slightly weaken against the green back from RM3.68 to a US dollar to RM3.69.

Gold and crude oil continued to be pressured by strong US dollar. COMEX gold fell 3.8 per cent in a week to US$1,152.20 an ounce. WTI Crude Oil fell eight per cent in a week to US$46.93 per barrel. Crude palm oil in Bursa Malaysia declined 1.9 per cent to RM2,247 per metric ton.

 

Observations

The FBM KLCI has turned bearish as it fell below its short term 30-day moving average. The market confidence was already weak as the index struggled to break above the long term 200-day moving average last week and the decline below the short term average indicates sentiment has turned bearish.

However, the index remained above the widening Ichimoku Could indicator and this indicates that there is support. Furthermore, the FBM KLCI is still above the immediate support level at 1,780 points. A breakout below this level again would confirm the bearish trend.

Momentum indicators like the RSI, Momentum Oscillator and MACD are indicating that the price has turned bearish. The RSI and Momentum Oscillator fell below their mid-levels and the MACD crossed below its moving average. Furthermore, the Bollinger Bands are expanding and the FBM KLCI is trading below the bottom band for the past two days. This indicates that the bearish momentum is gaining strength.

Technically, the market is expected to remain bearish as the bearish momentum has build up in the past one week. Furthermore, the Ringgit is expected to weaken further and crude oil price remain bearish as falling gold prices indicate possible stronger US dollar.

However, the market may still be supported as it is oversold in the short term. Henceforth, we expect the market to be directionless this week and the FBM KLCI to trade in a trading range between 1,780 and 1,800 points.

 

The above commentary is solely used for educational purposes and is the contributor’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 advisor.