02/06/2014 (Borneo Post) - In the previous article, I mentioned that the market may rebound as it approaches the support level and it did rebound on bullish global market performances despite mixed sentiment on the reported earnings. However, trading volume has shrunk as the market continued to take a cautious approach especially in the retail market.

The school holidays may have also contributed to lacklustre trading volume last week.

The index continued to be supported by foreign institutions. The FBM KLCI increased only 0.2 per cent in a week to 1,873.78 points after rebounding from a low of 1,862.27 points.

Average daily trading volume declined from two billion shares two weeks ago to only 1.6 billion shares last week.

Average daily trading value, however, increased from RM2 billion to RM2.8 billion and this shows that higher priced stocks which are normally traded by institutions were the main focus. It was the foreign institutions once again supporting the market this week and this could be due to stronger Malaysian ringgit.

Net selling from local institutions from Monday to Thursday last week amounted to RM346.80 million and net selling from local retail was RM75.2 million.

This made net buying from foreign institutions to RM422.0 million.

Despite the increase in the FBM KLCI, decliners overcome gainers two to one. Banks and oil and gas kept the index supported. The decliners were led by FGV (7.8 per cent), IOICORP (6.1 per cent) and YTL (5.8 per cent) and gainers were led by PBBANK (8.5 per cent), PETDAG (7.4 per cent) and SKPETRO (2.0 per cent)

Regional indices

Markets were mostly bullish last week following the bullish market performances by the US and European markets.

In Asia, Singapore’s Straits Times Index rose 0.7 per cent in a week 3,295.85 points. Hong Kong’s Hang Seng Index increased 0.5 per cent 23,081.65 points and China’s Shanghai Stock Exchange Composite Index increased 0.2 per cent to 2,309.21 points. Japan’s Nikkei 225 rose 1.2 per cent in a week to 14,632.38 points.

On Thursday, the US Dow Jones Industrial Average increased 0.9 per cent in a week to 16,698.74 points.

Germany’s DAX rose 2.2 per cent to a historical at 9,938.90 points and London’s FTSE100 Index rebounded to close 0.7 per cent higher in a week at 6,871.29 points.

Commodities

The US dollar Index, which measures the US dollar against a basket of major currencies, continued to increase for the fourth consecutive weeks. The index increased from 80.30 two weeks ago to points to 80.54 points. This caused gold to decline further. COMEX gold fell three per cent in a week to US$1,254.60 an ounce.

Crude oil in NYMEX was almost unchanged at US$103.51 per barrel after pulling back from a high of US$104.50. The ringgit was firm at RM3.21 per US dollar. Crude palm oil continued to face selling pressure, plunging 3.7 per cent in a week to RM2,421 per metric ton.

Observations

The FBM KLCI rebounded off the short term 30-day moving average and hence the trend remained bullish.

The fact that the index managed to stay above the immediate support level, despite temporarily being below this level, indicates that the market is still being supported well.

Of course, the support is made on the FBM KLCI component counters as the low-cap stocks were mostly in the red last week. Nevertheless, the bullish FBM KLCI provides some optimism to the market sentiment.

The increased caused momentum indicators like the RSI and MACD increase again, indicating stronger bullish momentum.

The index is above the middle band of the Bollinger Bands indicator but the bands are not expanding.

This indicates that there is still cautiousness in the bullish trend. Furthermore, last Friday’s movement formed a bearish reversal ‘Inverted Hammer’ Japanese Candlesticks pattern on high volume and this indicates resistance. Although the trend was bullish last week, it was weak. The momentum indicators and the candlesticks pattern show that weakness.

Furthermore, there were more decliners than advancers in the FBM KLCI. Henceforth, the market is expected to pull back and trade sideways with an envisaged support and resistance levels at 1,865 and 1,880 points. It’s probably going to be a quiet week especially on retail market participation.

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.