Technical rebound in a bearish trend

Global markets indices and commodities performances as at October 12.

Daily FBM KLCI chart as at October 12, 2018.

The market fell sharply after the government hinted that they are reducing shares exposure in government-linked public listed companies.

The market was further spooked by plunge in the US markets that sent negative vibes to global markets. However, the market staged a technical rebound last Friday. The FBM KLCI fell 2.6 per cent in a week to close 1,730.74 points last Friday after rebounding from a low of 1,682.98 points last Thursday.

Despite the sell down, trading volume increased slightly higher. The average daily trading volume has increased to 2.5 billion from 2.4 billion shares in the previous week and the average daily trading value rose to RM2.5 billion from RM2.1 billion.

The biggest sellers were foreign institutions on reaction to the government’s plan to rationalize their holdings in public listed companies. Net sell from foreign institutions was RM1,051 million while net buys from local institutions and local retail were RM603 million and RM448 million respectively.

In the FBM KLCI, decliners beat gainers five to one. The top three gainers were IHH Healthcare Bhd (1.6 per cent in a week to RM5.18), KLCC Property Holdings Bhd (0.7 per cent to RM7.60) and IOI Corporation Bhd (0.2 per cent to RM4.50). The top three decliners were Telekom Malaysia Bhd (15.6 per cent to RM2.60), Genting Malaysia Bhd (11.9 per cent to RM4.35) and Axiata Group Bhd (9.1 per cent to RM3.91).

The fell in the Malaysian market was in line with the global markets. In Asia, China’s Shanghai Stock Exchange Composite Index led the fall with a 7.6 per cent weekly decline, the lowest level since December 2014. US Dow Jones Industrial Average fell 4.2 per cent in a week and most European markets including UK are currently near 2018 lows.

US dollar has slightly weakened against major currencies. The US dollar Index (which measures the US dollar against major currencies) declined to 95.2 points last Friday from 95.6 points the week before. The Malaysian ringgit has weakened slightly against the US dollar at RM4.15 to a US dollar as compared to RM4.14 in the previous week.

Price of gold has increased amid fear in the equity markets. Price of gold in COMEX rose 1.3 per cent in a week to US$1,221.60 an ounce. Brent crude oil fell 4.2 per cent to US$80.60 a barrel on profit taking after climbing to its highest level in four years two weeks ago. Locally, crude palm oil futures fell 1.1 per cent to RM2,194 per metric tonne on higher inventory.

The FBM KLCI broke below the immediate support level at 1,780 points. This is also the neckline or the confirmation level of the head and shoulders pattern. The target for the pattern was 1,720 points and the index fell way below this level but managed to rebound to close above this level.

Immediate support level is currently at 1,683.0 points and resistance is at 1,755 points based on the 50 per cent Fibonacci retracement level of the immediate down trend.

Technically, the FBM KLCI trend is bearish below both the short and long term 30- and 200-day moving averages. Furthermore, the index has fallen and stayed below the Ichimoku Cloud and this a strong bearish trend.

Momentum indicators are indicating strong bearish momentum. Momentum indicators like the RSI and Momentum oscillator has fallen to their oversold levels. The MACD indicator continued to fall and the gap between the MACD and its moving average continued to widen. This indicates that the bearish trend momentum is getting stronger.

The FBM KLCI is now in a bearish trend. However, the indicators are showing that the index is oversold in the short term and hence a technical rebound is expected.

This was showcased at the end of last week. However, the bearish trend may continue if the index fails to climb above the immediate resistance level at 1,755 points. Therefore, if the index fails to climb above the resistance level, it may test the support level or last week’s low at 1,683 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.

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