There was blood on the streets of global financial markets last week. Casualties were not only equity markets but commodities markets including gold and cryptocurrencies. Plunge in crude oil prices and exponential growth of Covid-19 continue to drag markets down to multi-year lows. Many markets including the US hit lower limit circuit breakers a few times last week. It was volatile.
The FBM KLCI felt to its lowest level since July 2010. The decline last week was one of the worst since the sub-prime mortgage crisis in 2008. The FBM KLCI fell 9.3 per cent in a week to 1,344.75 points last Friday.
Daily FBM KLCI chart as of 13 March 2020
Trading volume surged in Bursa Malaysia amid panic selling. The average daily trading volume in the past one week jumped to 5.1 billion shares as compared to 3.2 billion two weeks ago. The average daily trading value increased to RM3.6 billion as compared to RM2.5 billion. This indicates that more lower-capped stocks, favoured by retail participants, were being traded. In the FBM KLCI, only one counter increased last week. The only gainer was Top Glove Corporation Bhd (four per cent in a week to RM6.24). The top three decliners were Petronas Chemicals Group Bhd (22.5 per cent to RM4.38), Press Metal Aluminium Holdings Bhd (19.5 per cent to RM3.79) and Hap Seng Consolidated Bhd (16.9 per cent to RM7.70).
Global markets ended in a sea of red. Most markets fell with a double-digit percentage. The US Dow Jones Industrial Average fell 21.5 per cent from its peak in just a month. European and US markets fell more than 20 per cent year-to-date (YTD). The FBM KLCI fell 15.4 per cent YTD. Ironically, the Shanghai Stock Exchange Composite fell the least last week and year-to-date.
US dollar strengthened against major currencies last week after the Federal Reserve said it would pump US$1.5 trillion into the American financial system to stop markets from freezing up. The US dollar index increased to 98.7 points last Friday from 96 points two weeks ago. The Malaysian ringgit has weakened against the US dollar at RM4.28 per US dollar last Friday as compared to RM4.17 the previous week, the weakest since August 2017.
Crude oil plunged 23.3 per cent in a week to US$34.72 per barrel last Friday. The price has fallen 47.4 per cent YTD. Crude palm oil declined seven per cent in a week to RM2,278 per metric tonne, the lowest since October 2019. The price has fallen 25 per cent YTD. Gold declined 8.6 per cent to US$1,529.10 an ounce and the price was almost the same as at the beginning of the year.
The FBM KLCI is currently testing the technical support level at 1,350 points. The next support level is at 1,250 points and the immediate resistance level is at 1,400 points.
Technically, the trend is strongly bearish below the short and long term 30-day and 200-day moving averages. From the moving average, the short-term trend has been technically bearish since early this year and the long-term trend has been bearish since November 2018. Furthermore, the FBM KLCI is below its Ichimoku Cloud indicator and the Cloud continues to decline, indicating a strong downtrend.
Momentum indicators indicate a strong bearish trend. Indicators like the RSI and Momentum Oscillator continued to fall and are currently at their oversold levels. Furthermore, the MACD indicator is below its moving average.
Major global markets indices performances as at March 13, 2020
We have seen the market in a downtrend since November 2018 and any rebound attempt was greeted by more selling pressure. However, the plunge in crude oil prices and the Covid-19 fear has accelerated the selling pressure since the beginning of this year.
The market is still incredibly uncertain and governments will not be able to stand still trying to figure out how to stabilize the panic in the markets. Lowering interest rates do not seem to provide any confidence. The US$1.5 trillion injection promised by the Federal Reserve may provide some support in the markets but will it be able to turn the market around? Only time will tell. One thing is for sure, the market is going to remain volatile.
The market may rebound as the index is at oversold levels. However, the market is still in a bearish mode, unless there is a significant rebound. The short term 30-day moving average is at 1,500 points, so go figure. If the FBM KLCI does not rebound significantly, the market may continue to be bearish and the next support level is at 1,250 points. When I mentioned the next support level at 1,350 points weeks ago, many thought it was impossible but markets normally move into a direction that we least expect.
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 investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment advisor.