Further downside seen ahead of general elections

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The market declined for the second week on cautiousness. The general elections this Wednesday, May 9, has caused jittery among market participants. Furthermore, the weaker ringgit has caused foreign institutions to reduce market exposure and thus dent market sentiment. The FBM KLCI fell 1.2 per cent in a week to 1,841.83 points last Friday.

Trading volume continued to decline and has been declining on a weekly basis in the past one month. The average daily trading volume fell to 1.8 billion shares from 1.9 billion two weeks ago. However, the average daily trading value increased to RM2.3 billion from RM2.2 billion. This indicates that the selling pressure comes from higher capped stocks.

Foreign institutions were net sellers last week followed by local retail. Net sells from foreign institutions and local retail were RM438 million and RM167 million respectively while net buy from local institutions was RM605 million.

In the FBM KLCI, decliners beat gainers five to one. The top gainers for the week were Sime Darby Bhd (4.7 per cent to RM2.69), KLCC Real Estate Investment Trust Bhd (1.9 per cent to RM7.53) and Tenaga Nasional Bhd (1.4 per cent to RM16.08). The top decliners were CIMB Group Bhd (6.6 per cent to RM6.77), YTL Corporation Bhd (5.6 per cent to RM1.35) and Westports Holdings Bhd (five per cent to RM3.23).

Global markets performances remained mixed last week. In Asia, markets were generally bearish except for Shanghai and Tokyo which rose marginally. The US market held firm while most European markets including London closed higher.

US dollar continued to strengthen against major currencies including the Malaysian ringgit last week. The US dollar Index rose to 92.6 points last Friday from 91.5 points the week before. The ringgit was RM3.94 to a US dollar last Friday, the weakest in three months against RM3.92 the week before.

Crude oil prices continued to increase on Iran tension. Crude oil (Brent) rose 0.6 per cent in a week to US$74.89 a barrel. Gold (COMEX) fell 0.7 per cent in a week to US$1,315.30 an ounce. In the local market, crude palm oil futures fell 1.6 per cent to RM2,343 per metric tonne, the lowest since August 2016.

The FBM KLCI fell to a month low last week. The index fell and stayed below the 61.8 per cent Fibonacci retracement level of the bullish rally that started in early April at 1,844 points. This indicates a bearish market sentiment and trend.

Technically, the trend is bearish in the short term. The FBM KLCI failed to climb above the 30-day moving average and continued to decline. Furthermore, the index is now at the bottom line of the Cloud indicator and this indicates support gets thinner.

Momentum indicators are indicating that the bearish momentum is getting stronger. The RSI and Momentum Oscillator indicators continued to decline below their mid-levels and the MACD indicator remained below its moving average. Also, the FBM KLCI is not trading near the bottom band of the Bollinger Bands indicator. This indicates a bearish trend but not a strong one as the bands are still squeezing instead of expanding.

I have mentioned in the previous article that the index may fall to the next support level at 1,800 points if it fails to be supported above the immediate support level at 1,844 points. Technical indicators are showing stronger bearish trend and hence the bearish trend is expected to continue. Henceforth, we expect the market to test the support level at 1,800 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.