Resistance broken, market to trend higher

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Daily FBM KLCI chart as at August 12, 2016 using Next VIEW Advisor Professional

Daily FBM KLCI chart as at August 12, 2016 using Next VIEW Advisor Professional

The FBM KLCI finally broke above the immediate resistance level of a sideways trend at 1,675 points and closed at its highest in three-and-a-half months. Bargain hunting continued in the first month of the second half of the year, especially from foreign institutions who have been net sellers in the 2nd quarter. The FBM KLCI increased 1.2 per cent in a week to 1,684.15 points.

Trading volume was higher last week as market confidence strengthened.

The average daily trading volume last week was 2.2 billion shares as compared to two billion shares two weeks ago. However, the average daily trading value remained firm at RM1.9 billion.

This indicates that more lower-capped stocks, which are favoured by the local retail market, were being traded.   Stronger ringgit continued to lure foreign institutions.

Net buy from foreign institutions in Bursa Malaysia was RM302 million while net sells from local institution and retail were RM263 million and RM39 million respectively.

The ringgit was stronger against the US dollar from RM4.03 per dollar to RM4.01.

In the FBM KLCI, only four out of 30 counters declined. The top gainers for the week were UMW Holdings Bhd (11.9 per cent in a week to RM6.48), Hong Leong Financial Group Bhd (6.3 per cent to RM16.16) and Sapurakencana Petroleum Bhd (5.6 per cent to RM1.50).

The top decliners were IOI Properties Group Bhd (two per cent to RM2.42), IOI Corporation Bhd (1.4 per cent to RM4.39) and PPB Group Bhd (one per cent to RM16.02).

Asian markets rebounded and closed mostly higher. China’s Shanghai Stock Exchange Composite increased 2.5 per cent in a week to 3,051.02 points last Friday.

Japan’s Nikkei 225 index jumped 4.1 per cent in a week to its 2-month high at 16,919.92 points. Hong Kong’s Hang Seng Index rose 2.8 per cent in a week to 22,766.91 points, the highest in 9 months. Singapore’s Straits Times increased 1.4 per cent to 2,867.4 points.

The US and European markets were generally bullish. The US Dow Jones Industrial Average increased 0.2 per cent in a week to 18,576.47 points on Friday and was at historical high on Thursday.

London’s FTSE100 rose 1.8 per cent in a week to 6,916.02 points, the highest in 14 months. Germany’s DAX Index rose 3.3 per cent to 10,713.43 points after climbing to its highest level to-date on Thursday.

US dollar slightly weakened against major currencies. The US dollar index futures declined from 96.1 points the week before to 95.7 points last Friday.

COMEX Gold was firm at US$1,333.20 ounce. Crude oil (Brent) increased 6.1 per cent in a week to US$ 46.97 per barrel.

Crude palm oil in Bursa Malaysia jumped 4.9 per cent in a week to RM2,523 per metric tonne on stronger palm oil shipping for the month of July.

The 1,675 points resistance level of the FBM KLCI is finally broken. This level was tested in mid-July.

The index is above the short term 30-day moving average but below the long term 200-day moving average and hence, the breakout indicates that the FBM KLCI is set to trend higher. Furthermore, the FBM KLCI climbed above the Ichimoku Cloud.

The bullish market sentiment strengthened last week. Momentum indicators like the RSI and Momentum oscillator are above their middle levels and increasing. The MACD indicator rose above its moving average and The Bollinger Bands are expanding as the FBM KLCI testing the top band of the Bollinger Bands in the last two trading days.

The long term, stronger resistance level is at 1,730 points. There is a possibility for the FBM KLCI to test this level but there is another technical resistance at 1,700 points.

We expect the index to test 1,700 points as long as it can stay above the broken resistance level (now turned support) at 1,675 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.