Bearish sentiment strengthening

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Daily FBM KLCI chart as at Oct 14, 2016 using Next VIEW Advisor Professional

Daily FBM KLCI chart as at Oct 14, 2016 using Next VIEW Advisor Professional

The market was mostly bearish last week on weaker ringgit and lack of catalysts. The market was weighed down by telecommunication counters in the index. Markets performances globally were also weak ahead of the US presidential election next month.

The low trading volume indicates that the market is staying in the sidelines. The FBM KLCI declined 0.4 per cent in a week to 1,658.97 points.

The average daily trading volume last week was only 1.6 billion shares as compared to 1.8 billion shares two weeks ago. Trading volume has also declined from RM2.3 billion two weeks ago to RM1.8 billion. This shows lack of market participation in both retail and institutions.

Weak ringgit forced foreign institutions to sell last week. Net buy from local institution last week was RM309 million and net sells from local institutions and local retail were RM227 million and RM82 respectively. The Malaysian ringgit was at RM4.20 per US dollar last Friday as compared to RM4.16 on the previous week.

In the FBM KLCI, decliners beat gainers nine to five. The top gainers for the week were Genting Malaysia Bhd (2.8 per cent in a week to RM4.79), Petronas Chemicals Group Bhd (1.6 per cent to RM6.81) and KLCC Properties & REITS Stapled Securities Bhd (one per cent to RM7.83).

The top decliners were Maxis Bhd (2.8 per cent to RM6.02), Axiata Group Bhd (1.7 per cent to RM5.11) and IHH Healthcare Bhd (1.4 per cent to RM6.42).

Asian markets were generally bullish. China rebounded to close 1.9 per cent higher from two weeks ago after a week long holiday two weeks ago. Hong Kong’s Hang Seng Index fell 2.6 per cent in a week to 23,233.31 points last Friday. Japan’s Nikkei 225 index closed marginally lower at 16,856.37 points. Singapore’s Straits Times fell 2.1 per cent in a week to 2,815.24 points.

Markets were mixed again in the US and Europe and Europe markets. The US Dow Jones Industrial Average declined 0.6 per cent in a week 18,138.38 points last Friday. London’s FTSE100 shed 0.4 per cent in a week to 7,013.55 points. However, Germany’s DAX Index rose 0.9 per cent to 10,580.38 points.

US dollar continued to strengthen against major currencies. The US dollar index futures rose to its highest in 7 months last week and increased from 96.5 points two weeks ago to 98.1 points last Friday.

COMEX gold declined 0.5 per cent to US$1,251.70 ounce. Crude oil (Brent) increased only 0.2 per cent to US$52 per barrel.

Crude palm oil in Bursa Malaysia jumped 4.1 per cent to RM2,665 as Malaysian palm oil inventory remained near five-year low.

The FBM KLCI continued to stay within the triangle chart pattern range and this indicates that the market is still directionless. Furthermore, the index remained inside the Ichimoku Cloud indicator.

However, the bearish momentum is strengthening as there are more filled candlesticks than hollow ones.

Momentum indicators are declining and this indicates that the market sentiment, which is already bearish, is starting to strengthen. The RSI and Momentum Oscillator indicators are below their mid-levels and declining to short term lows. Furthermore, the MACD indicator is about to fall below its mid-level. The FBM KLCI is at the bottom range of the Bollinger bands indicator with support at 1,650 points.

Support level remained FBM KLCI is at 1,650 points, based on the Ichimoku Cloud, Bollinger Bands and moving averages. The immediate resistance is at 1,690 points, which is the resistance line of the triangle chart pattern. The FBM KLCI has moved closer to the support level last week.

Like last week, I am expecting the FBM KLCI to test the support level at 1,650.0 points on stronger bearish indications. A breakout below could trigger more selling and the FBM KLCI may decline to the next support level at 1,610 points.

However, a rebound in the market this week indicates that the correction is not over and the index may continue to trade sideways.

Despite the overall bearish sentiment plantation, oil and gas and export oriented companies may provide some opportunities.

 

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.