Further declines seen

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Daily FBM KLCI chart as at October 26, 2018.

Global markets indices and commodities performances as at October 26.

The bearish trend extended last week after an effort to support the market failed. The bearish global markets performances influenced market sentiment. Furthermore, weaker ringgit had fallen to its weakest level in 11 months against the US dollar. The FBM KLCI fell 2.8 per cent in a week to close 1,683.06 points last Friday.

The bearish momentum started to gain traction last week. Trading volume was almost unchanged but the index declined significantly. This indicated lack of support. The average daily trading volume has increased to 2.1 billion from two billion shares in the previous week but the average daily trading value rose to RM2 billion from RM2.1 billion.

Foreign institutions continued to be net sellers on weaker ringgit and the main net buyer was local retail. Net sell from foreign institutions was RM310 million while net buys from local institutions and local retail were RM66 million and RM244 million respectively.

In the FBM KLCI, only two out of 30 counters close higher last week. The two gainers were MISC Bhd (four per cent in a week to RM5.96) and KLCC Properties Bhd (1.5 per cent to RM7.62). The top three decliners were Sime Darby Bhd (16 per cent to RM2.10), Telekom Malaysia Bhd (10.8 per cent to RM2.15) and CIMB Group Holdings Bhd (seven per cent to RM5.62).

Global markets were in a sea of red last week, except for China. In Asia, Japan took the lead with a six per cent decline in the Nikkei225 index, the lowest in six months. China’s Shanghai Stock Exchange Composite Index rebounded to close 1.9 per cent higher after weeks of declines. Markets is Europe including UK declined. The US Dow Jones Industrial Average finally followed the rest of the global market indices and this is falling into the red year-to-date.

US dollar continued to strengthen against major currencies. The US dollar index (which measures the US dollar against major currencies) increased to 96.3 points last Friday from 95.6 points the week before. The Malaysian ringgit has weakened slightly against the US dollar at RM4.17 to a US dollar as compared to RM4.16 in the previous week.

Gold price stayed firm in the past one week as bearish global markets performances have pushed more interest in gold. Price of gold in COMEX rose 0.4 per cent in a week to US$1,235.40 an ounce. Brent crude oil, however, fell 2.9 per cent to US$77.73 a barrel. In the local market, crude palm oil futures fell 3.4 per cent to RM2,147 per metric tonne.

The FBM KLCI is currently testing the support level at 1,683 points, the level where the index rebounded off two weeks ago. The market faced resistance when the index failed to break above 1,742 points.

Trend-wise, the FBM KLCI is strongly bearish below both the short and long term 30- and 200-day moving averages. Furthermore, the index remained below the Ichimoku Cloud indicator and the Cloud is declining and expanding moving forward. Based on the Cloud, the market is expected to rebound in a week’s time, when the Cloud is at its thinnest.

Momentum indicators continued to fall to newer lows after failing to turn bullish two weeks ago. Momentum indicators like the RSI and Momentum oscillator are currently at oversold levels. However, in a strong bearish trend, these indicators should remain being oversold. Furthermore, the MACD indicator remained below its moving average or trigger line. These indicators show that the bearish trend momentum is strengthening.

The index has fallen 100 points in less than a month after breaking below the then support level at 1,780 points. It is now at a support level at 1,680 points. With the strong bearish momentum, the FKLI is expected to break below the support level and test the next support level at 1,655 points. If it fails to be supported above this level, the index may decline to the following support level at 1,610 points. The trend is expected to be bearish if it stays below 1,710 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.