Market waits for cues from earnings season

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Daily FBM KLCI chart as at August 5, 2016 using Next VIEW Advisor Professional

Daily FBM KLCI chart as at August 5, 2016 using Next VIEW Advisor Professional

The market continued to trade sideways although further declines were expected. The FBM KLCI did decline in the first half of the week and even fell to its lowest level in nearly a month.

However, it rebounded on Thursday and managed to close higher on week-to-week basis as bargain hunting continued. The FBM KLCI increased 0.6 per cent in a week to 1,664.04 after trading between 1,648.45 and 1,666.5 points.

Trading volume was higher from previous week. The average daily trading volume last week was two billion shares as compared to 1.9 billion shares two weeks ago.

The average daily trading value increased from RM1.8 billion to RM1.9 billion.

Stronger ringgit continued to lure foreign institutions. Net buy from foreign institutions in Bursa Malaysia was RM302 million while net sells from local institution and retail were RM263 million and RM39 million respectively. The ringgit was firm against the US dollar at RM4.03.

Gainers outpaced decliners eight to five in the FBM KLCI. The top gainers for the week were IOI Corporation Bhd (5.2 per cent in a week to RM4.45), IOI Properties Group Bhd (4.7 per cent to RM2.47) and AMMB Holdings Bhd (2.8 per cent to RM4.42. The top decliners were Westports Holdings Bhd (2.2 per cent to RM4.40), RHB Capital Bhd (1.8 per cent to RM5) and Petronas Gas Bhd (0.9 per cent to RM21.98).

Asian markets were generally bearish. China’s Shanghai Stock Exchange Composite declined 0.1 per cent in a week to 2,977 points last Friday. Singapore’s Straits Times fell 1.4 per cent to 2,828.17 points. Japan’s Nikkei 225 index declined 1.9 per cent in a week to 16,254.54 points.

However, Hong Kong’s Hang Seng Index rose 1.2 per cent in a week to 22,146.09 points.

The US and European markets were generally bullish despite a weak start. The US Dow Jones Industrial Average increased 0.6 per cent in a week to 18,543.53 points on Friday. London’s FTSE100 rose 1.0 per cent in a week to 6,793.47 points, the highest in 13 months. Germany’s DAX Index rose 0.3 per cent to 10,367.21 points.

US dollar strengthened against major currencies. The US dollar index futures increased from 95.5 points to 96.1 points last Friday. COMEX Gold pulled back on stronger dollar, declining 1.1 per cent in week to US$1,334.50 ounce. Crude oil (Brent) increased 1.7 per cent in a week to US$44.27 per barrel.

Crude palm oil in Bursa Malaysia jumped 3.8 per cent in a week to RM2,406 per metric tonne on stronger demand prospects and increase in soybean oil prices.

The FBM KLCI remained in a sideways trading range and this indicates a directionless market. The uncertainty is caused by lack of catalysts and the market would want to observe companies performances in this earnings reporting season. The index is above the short term 30-day moving average but below the long term 200-day moving average.

Furthermore, the FBM KLCI is in the Ichimoku Cloud and this is another indication of a directionless market. Resistance level is at 1,675 points and therefore the FBM KLCI is directionless if it continues to stay between these support and resistance levels.

The market sentiment is weak, with no signs of bullish strength of bearish pressure. Momentum indicators like the RSI and Momentum oscillator are above their middle levels but has been whipsawing in the past two weeks. The Bollinger Bands are tightening and this is another indication of a weak performance. However, the FBM KLCI is above the middle band and this indicates good support.

We are probable going to expect the market continue trading sideways as investors may stay in the sidelines waiting for cues in this earnings season.

Furthermore, there are no catalysts at this moment but stronger ringgit helped to support the market. However, the bullish movement on the ringgit is not particularly strong.

The FBM KLCI tested the support level at 1,650 points last week and if it breaks below this level once again, we could expect stronger selling pressure and the FBM KLCI may fall to the next support level at 1,610 points in the short term.

If it stays above this level, then expect another directionless movement between the support and resistance levels.

 

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.