Bearish momentum gaining strength

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Daily FBM KLCI chart as at November 21, 2014 using Next VIEW Advisor Professional

The market rebounded in the earlier part of the week but was dragged down in the past two days by Petronas Dagangan Bhd because of falling crude oil price, and CIMB Group because of its lower than expected earnings results.

The FBM KLCI declined 0.3 per cent to 1,809.13 points after pulling back from a high of 1,827.40 points. Last week, I mentioned that the rebound is expected to be capped at 1,830 points.

The overall bullish global market performances did not manage to change the bearish sentiment.

The weaker Malaysian ringgit, which is at its lowest level in four years against the US dollar, was also a catalyst for the bearish market sentiment. Furthermore, the government has decided to stop petrol subsidy come December 1 and this added more concern over higher inflation for 2015 that may prompt central bank to raise key interest rates.

Trading volume has slightly declined significantly in the past one week.

The average daily trading volume in the past one week was only 1.7 billion shares as compared to two billion shares last week. This indicates that the market is being cautious. Average daily value declined to RM1.7 billion from RM1.9 billion two weeks ago.

Institutions, both local and foreign, were net sellers in the market in the past one week while local retail were the buying support and clearly the retail market is not strong enough to support the market. Net selling from local institutions (From Monday to Thursday last week) was RM14.2 million while net selling from foreign institutions was RM83.7 million. Local retail net buying was RM97.9 million.

In the FBM KLCI, decliners marginally edged gainers eight to seven. Gainers were led by PPB Group Bhd (3.1 per cent), Tenaga Nasional Bhd (3.1 per cent) and Petronas Chemicals Group Bhd (2.4 per cent) while decliners in the index were led by Petronas Dagangan Bhd (10.2 per cent), CIMB Group Holdings Bhd (7.6 per cent) and Felda Global Ventures Holdings Bhd (5.5 per cent).

Markets performances in Asia were mixed in the past one week. Singapore’s Straits Times Index increased 0.9 per cent in a week at 3,345.32 points. Hong Kong’s Hang Seng Index declined 2.7 per cent in a week 23,437.12 points but China’s Shanghai Stock Exchange Composite rose 0.3 per cent to 2,487.11 points. Japan’s Nikkei 225 declined 0.8 per cent in a week to 17,357.51 points after pulling back from the highest level in seven years the previous week.

The US market continued to climb to record highs as US dollar managed to hold at 4 year highs and markets in Europe followed US cue. On Thursday, the US Dow Jones Industrial Average rose 0.4 per cent in a week to its highest close ever at 17,719.00 points. London’s FTSE100 increased 0.6 per cent in a week to 6,678.90 points and Germany’s increased 2.6 per cent in a week to 9,483.97 points. US dollar index was firm at 87.70 points as compare to last week.

Prices of precious metals continued to increase as the bullish momentum of the US dollar eased. COMEX gold rose 2.8 per cent in a week to US$1,193.90 an ounce on Thursday. NYMEX WTI crude rebounded 2.8 per cent in a week to US$76.37 per barrel. The rebound in crude oil prices and weaker ringgit helped crude palm oil to rebound. Bursa Malaysia crude palm oil futures rose 1.6 per cent last week to RM2,242 per metric tonne.

The failure to continue to rally after a rebound in the early part of last week indicates that the market sentiment is still bearish. The index remained below the short term 30-day moving average and the Ichimoku Cloud. The FBM KLCI is now at the support level that we envisaged a month ago at 1,810 points, which is the 50 per cent retracement level of the bullish trend that started in mid-October.

The market may continue to be bearish as long as the index stays below this level and the next support level can only be found at the psychological support level at 1,800 points.

Momentum remained bearish in the past one week as the RSI indicator stayed below the mid-level the whole week. The decline in the past two days indicates that the bearish momentum is gaining strength. Furthermore, the FBM KLCI did not manage to climb above the middle band of the Bollinger Bands indicator and is now near the bottom band.

The index is expected to remain bearish this week as the momentum is gaining strength. We expect the index to test the psychological support level at 1,800 points and if the market failed to be supported at this level, it may continue to fall downwards to the next support level at 1,770 points.

We only expect the market to turn bullish if the index is able to overcome the immediate resistance level at 1,830 points. Henceforth, I suggest staying out until the bearish momentum eases.

The above commentary is solely used for educational purposes and is the contributor’s point of view using technical 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.