Market may need time to evaluate Brexit

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Daily FBM KLCI chart as at June 24, 2016 using Next VIEW Advisor Professional

Daily FBM KLCI chart as at June 24, 2016 using Next VIEW Advisor Professional

The market rebounded last week on bargain hunting as we have expected but was cautious ahead of the Great Britain exit from the European Union late Thursday. Markets, including equity and currencies markets, were volatile last Friday after the British decided to leave European Union. However, the FBM KLCI managed to close 0.6 per cent higher from last week at 1,634.05 points.

Trading volume was low in most days of last week but was high last Friday as bulls and bears fought fiercely.

The average daily trading volume last week was 1.6 billion shares as compared to 1.5 billion shares two weeks ago. The average daily trading volume increased from RM1.6 billion to RM1.8 billion.

Support from the market came from local retail as foreign institution continued to sell especially Friday as ringgit weakened.

Net buy from local retail in the past one week was RM108 million while net buy from local institutions was only RM26 million. Net sell from foreign institutions was RM134 million.

The ringgit slightly strengthened against the US dollar from RM4.10 to a US dollar a week ago to RM4.07.

In the FBM KLCI, gainers out-paced decliners 17 to 10. The top gainers for the week were IHH Healthcare Bhd (4.7 per cent in a week to RM6.70), DIGI.com Bhd (3.2 per cent to RM4.80) and Maxis Bhd (2.1 per cent to RM5.80).

The top decliners were Sapurakencana Petroleum Bhd (4.3 per cent to RM1.35), Genting Bhd (2.2 per cent to RM7.88) and YTL Corporation Bhd (1.8 per cent to RM1.60).

Asian markets performances were mixed but Japan fell to its lowest in 20 months. China’s Shanghai Stock Exchange Composite declined 1.1 per cent in a week to 2,853.63 points last Friday. Hong Kong’s Hang Seng Index rose 0.4 per cent in a week to 20,259.13 points while Singapore’s Straits Times declined one per cent to 2,735.39 points. Japan’s Nikkei 225 index fell 4.1 per cent to 14,952.02 points.

Markets in US and Europe were also mixed. The US Dow Jones Industrial Average declined 1.0 per cent in a week to 17,500.39 points last Friday. Germany’s DAX Index fell 0.8 per cent in a week to 9,557.16 points and London’s FTSE100 increased 2.0 per cent to 6,138.69 points despite the UK exiting the European Union.

US dollar was weakening most of the days last week but strengthened last Friday after the US exit. The US dollar index futures rose from 94.3 points to 95.3 points last Friday.

Gold jumped last Friday as currencies turned volatile. COMEX Gold increased 1.5 per cent in week to US$1,320.30 an ounce. Crude palm oil in Bursa Malaysia fell 2.7 per cent in a week to RM2,382 per metric tonne on demand worries.

The FBM KLCI rose above its short term 30-day moving average last week but pulled back to the average last Friday.

The whipsaw against the moving average indicates short term uncertainty. In the long term, however, the trend is still bearish as the index continues to stay below the long term 200 day moving average and the Ichimoku Cloud.

Support level is strong at 1,610 points. In the past one month, the FBM KLCI rebounded whenever it fell to this level, including last Friday when there was strong selling pressure. Despite being bearish in the long term, the bullish divergence on the RSI indicator shows that there is strong support.

The FBM KLCI is still within the sideways range between 1,610 and 1,640 points. After the UK exit, the market may need some time to evaluate the situation. If the FBM KLCI stays between these levels, the market is still uncertain.

However, a breakout above 1,640 points indicates a bullish sentiment and the market may start to rally but a breakout below 1,610 points could cause a major decline and we are talking above the index falling to 1,500 points. Let’s see which level the FBM KLCI breaks.

 

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.