Market at crucial short-term bullish trend support level

Daily FBM KLCI chart as at September 7, 2018.

Global markets indices and commodities performances as at September 7:

The FBM KLCI snapped a two-week gain and pulled back as expected after climbing to a three-month high two weeks ago. Market sentiment was a little weak on weaker than expected corporate results and weakening ringgit. The FBM KLCI fell 1.1 per cent in a week to 1,8,99.17 points last Friday. The decline was in line with global markets performances.

Trading volume was lower last week as the long weekend holiday may have caused market participants to take a break. The average daily trading volume fell to 2.4 billion from 2.7 billion shares in the previous week. The average daily trading declined to RM1.9 billion from RM2.9 billion. This indicates the trading volume was focused on lower-capped counters.

Foreign institutions began selling last week on weak ringgit. Net sells form foreign institutions was RM663 million while net buys from local institutions and local retail were RM629 and RM34 million respectively.

In the FBM KLCI, decliners beat gainers three to one. The top three gainers were Sime Darby Bhd (5.5 per cent in a week to RM2.69), Westports Holdings Bhd (2.2 per cent to RM3.80) and Kuala Lumpur Kepong Bhd (one per cent to RM24.90). The top three decliners were Telekom Malaysia Bhd (5.6 per cent to RM4.53), MISC Bhd (4.9 per cent to RM8.20) and Genting Bhd (3.6 per cent to RM3.19).

Markets performances were generally bearish last week. In Asia, the weekly decline was led by Hong Kong’s Hang Seng Index which fell to its lowest level in a year and Singapore’s Straits Times Index which fell to its 16-month low. Most European markets indices fell to a four-month low including UK. However, the US Dow Jones Industrial Average fell marginally lower.

US dollar has strengthened against major currencies The US dollar Index increased to 95.3 points last Friday from 95.1 points the week before. The Malaysian ringgit weakened against the US dollar, from RM4.11 to RM4.14 per US dollar last Friday.

Prices of major commodities were slightly weaker. Gold (COMEX) declined 0.4 per cent in a week to US$1,201.80 an ounce last Friday. Crude oil (Brent) snapped a two-week gain and declined 0.5 per cent to US$77.10 a barrel. In the local scene, crude palm oil futures increased 0.8 per cent to RM2,264 per metric tonne.

The FBM KLCI pulled back and tested the short-term bullish trend support level at 1,794 points last week. The index is now at a crucial support level as a breakout of this support level indicates that the short-term bullish trend is over. The bullish trend may continue if the index can stay above this level.

Technically, the FBM KLCI remained bullish above both the short term 30 and 200 day moving averages. However, the index is testing both the moving averages. On a positive note, the FBM KLCI continued to stay above the wide Ichimoku Cloud indicator and moving forward, the Cloud is seen expanding upwards and this indicates bullish future for the FBM KLCI.

Momentum indicators fell last week. This indicates a weak bullish momentum in the short term. Indicators like the RSI and Momentum Oscillator are at their middle level, indicating that the index is at the support level. However, the MACD has fallen below its moving average and this indicates that the short-term bullish momentum us losing traction.

The question right now is whether the market is going to rebound or move further into a correction.

The technical indicators and overall bearish market sentiment show that the market has a higher change of declining further into a correction. Henceforth, the FBM KLCI is expected to trend downwards towards the next support level at 1,742 points if it fails to rebound this week.

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.

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