Market expected to consolidate

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The FBM KLCI tested the expected resistance level at 1,420 points last Monday but failed to closed above it. The index pulled back for a correction last week and snapped a two-week increase on profit-taking activities after a strong rebound since last month.

The local market performance was in line with global market performances. The FBM KLCI fell 2.7 per cent in a week to 1,369.85 points last Friday.

Trading volume has increased last week and this indicates that the resistance is strong. The average daily trading volume in the past one week was 5.5 billion shares as compared to five billion two weeks ago. However, the average daily trading value increased to RM3.0 billion from RM2.5 billion. Still, the trading activity focused on lower capped counters.

In the FBM KLCI, only two out of 30 counters increased in a week. The two gainers were Press Sime Darby Bhd (8.1 per cent in a week to RM2) and Top Glove Corporation Bhd (5.4 per cent to RM7.17). The top three decliners were Petronas Chemicals Group Bhd (6.7 per cent to RM5.27), Digi.com Bhd (4.8 per cent to RM4.36), and AMMB Holdings Bhd (4.5 per cent to RM2.96).

Daily FBM KLCI chart as of 24 April 2020

Global markets declined for a correction last week. There are no signs of the Coronavirus Disease 2019 (Covid-19) infection slowing down and the number infected in the US alone is expected to reach one million in the coming week. Total infections globally is currently at 2.8 million.

Global market lockdowns brought the economy to its knees and cash-strapped companies are already feeling the pressure of surviving.

In the US, jobless claims were at a record 26 million in the last five weeks. However, there is a slight decline in its weekly claims. The highest was over six million claims in the last five weeks to 4.2 million last week. Like the US, many other countries are giving out economic stimulus packages to soften the impending global recession.

The US dollar has slightly strengthened against major currencies last week. The US dollar Index increased to 100.3 points last Friday from 99.8 points two weeks ago.

Hence, the Malaysian ringgit slightly weakened against the US dollar at RM4.36 per US dollar last Friday as compared to RM4.37 in the previous week.

Gold rebounded from a pull back two weeks ago as equity markets pulled back. Gold futures (COMEX) increased 2.8 per cent in a week to US$1,745.65 an ounce last Friday.

Crude oil, plunged 22 per cent to US$21.91 a barrel last Friday. Crude oil market went into a frenzy last week after the WTI Crude May futures contract fell below zero.

The FBM KLCI tested the resistance level at 1,420 points last week and the pull back provides the evidence of the resistance, for now. The immediate support level is currently at 1,320 points, based on the 50 per cent Fibonacci retracement level from the rally that started last month.

Technically, the FBM KLCI is bearish despite climbing above the 30-day moving average.

However, the moving average is still declining. Furthermore, the index failed to climb above the Ichimoku Cloud indicator after moving into the Cloud last week.

Momentum indicators indicate a weak bullish momentum. Indicators like the RSI and Momentum Oscillator has fallen below their mid-levels after hovering above them temporarily last week. The MACD indicator remained above its moving average after climbing above it a month ago. However, the MACD is starting to decline.

Technically, the market is in a down trend correction. The technical rebound in the past one month remains as a correction of a down trend is the FBM KLCI fails to climb above 1,420 points. The market is expected to take a breather and find direction from earnings report in the next one month. Furthermore, it’s the Ramadan period and Eid is just a month away.

Henceforth, the market is expected to consolidate further and the FBM KLCI to trade between 1,320 points and 1,420 points. The index is expected to remain in a sideways correction as long as it stays between these levels.

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.

Major global markets indices performances as at April 24, 2020