After setting record highs, shares ended lower in the first few trading days in the new year on profit taking activities. Regional markets declined while players took a cautious approach and avoid taking higher risks in oversold markets.
The market may be lacklustre in the next few weeks as funds will start to adjust their portfolio after a good run in year 2013.
The challenge now is whether the markets can continue to extend its bull run which started since 2008.
Locally, the market will start to evaluate the effect of rising prices in the first few months and whether interest rates will be raised earlier than expected.
The FBM KLCI declined 1.4 per cent in a week to 1,834.74 points on Friday after climbing to a historical high of 1,872.52 points last Monday.
Trading volume has increased to an average daily trading volume of 1.4 billion shares as compared to one billion shares two weeks ago.
Despite the decline in the FBM KLCI, gainers outpaced decliners two to one in the past one week and were led by IHH (four per cent), UEMS (2.6 per cent) and RHBCAP (2.2) while decliners were led by YTL (3.6 per cent), SKPETRO (3.4 per cent) and GENTING (1.8 per cent).
Global markets started to pull back in the first few trading days after the new year.
Singapore’s Straits Times Index declined 0.6 per cent in a week to 3,131.47 points. Hong Kong’s Hang Seng Index fell 1.8 per cent to 22,817.28 points.
China’s Shanghai Stock Exchange Composite Index declined 0.9 per cent to 2,083.14 points.
The US Dow Jones Industrial Average shed 0.2 per cent in a week to 16,441.35 points last Thursday.
In Europe Thursday, UK’s FTSE 100 index rose 0.4 per cent in a week to 6,717.91 points while Germany’s DAX Index declined 0.9 per cent to 9,004.04 points.
US dollar rebounded against major currencies last week after declining for the past two weeks and oil fell.
The US Dollar index increased from 80.15 points to 80.79 points last Thursday.
The correction in the equities market helped support gold prices. COMEX gold increased one per cent in a week to US$1,222.40 an ounce.
NYMEX WTI crude oil rose 4.2 per cent to US$95.44 per barrel. The Malaysian ringgit was firm from last week at RM3.29 against a US dollar.
Crude palm oil marginally increased 0.3 per cent in a week to RM2,640 per metric ton.
Technically, the FBM KLCI is still in an up trend as the index stays above the short term 30 day moving average and the average is still increasing.
The index is also above the Ichimoku Cloud indicator.
Furthermore, the FBM KLCI is still within the short term up trend channel.
Support level for maintaining the short term up trend is at 1,820 points and as long as the index is able to stay above this level, the trend is still bullish.
In the longer term, the trend is still bullish as long as it stays above the long term 200-day moving average which is currently at 1,800 points.
Momentum indicators have started to show weaker bullish momentum.
The RSI indicator has fallen below the mid-level and the MACD indicator has crossed below its moving average.
Furthermore, the FBM KLCI went below the middle band of the Bollinger Bands indicator.
The Ichimoku Cloud has also started to contract, indicating weaker support.
Therefore, these indicators indicate that the index may move further into correction.
We may expect market to be cautious and also profit taking activities on blue chip counters may prevail at least for the next few weeks.
Technical indicators show that the trend is expected to weaken further in the short term.
I am expecting the index to test the support level between 1,800 and 1,820 points, and if it does not fall below this level, we may see market start buying again.
While we may expect market to trend higher in the intermediate term, a short term correction is expected.
Therefore, expect a choppy market this week with a trading range between 1,820 and 1,840 points. While blue chips may take a breather, second liners may start to rally.
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.