Daily FBM KLCI chart as at August 1, 2014 using Next VIEW Advisor Professional

18/08/2014 (Borneo Post) - In my article last week, I mentioned that the market is bearish but a technical rebound is expected with the index trading between 1,840 and 1,860 points. The market did rebound last week after the market found some footing after a knee-jerk reaction over US’s targeted airstrike in Iraq.

Other markets rebounded as well and regained most of the losses made two weeks ago.

The Malaysian market remained resilient on stronger Malaysian Ringgit as foreign institutions start buying after being net sellers for weeks. The benchmark FBM KLCI managed to climb and close above the previous support level at 1,860 points. The index rose 1.3 per cent in a week to 1,864.31 points last Friday.

Trading volume was high last week with an average trading volume of 3.5 billion shares as compared to 3.2 billion shares two weeks ago. However, average trading value remained firm at RM2.4 billion.

Once again, lower priced stocks are being traded and there are about 40 counters that broke the 52-week high on high volume (above 10 million shares traded last Friday). Among the top five (by volume) are PDZ, GLOTECH, EAH, FRONTKEN and SANICHI.

Foreign institutions were the net buyers last Monday to Thursday. Net buying from foreign institutions was RM216.7 million and net selling from local institutions and local retail was RM163.7 and RM53 respectively.

In the FBM KLCI, gainers thumped decliners 5 to 1. Top gainers in the index were led by PETGAS (7.4 per cent), PPB (4.1 per cent) and PETDAG (3.6 per cent) and decliners were led by KLK (1.7 per cent), SKPETRO (1.7 per cent) and PCHEM (1.2 per cent)

Regional indices

Global markets generally rebounded as the Ukraine-Russia tension eased. Singapore’s Straits Times Index increased 0.8 per cent in a week to 3,314.77 points.

Hong Kong’s Hang Seng Index rose 2.6 per cent in a week to 24,954.94 points, the highest close in nearly four years and China’s Shanghai Stock Exchange Composite Index increased 1.5 per cent to its nine-month high at 2,226.73 points.

Japan’s Nikkei 225 jumped 3.6 per cent in a week to 15,318.34 points. On Thursday, the US Dow Jones Industrial Average increased 2.1 per cent in a week to 16,713.58 points. London’s FTSE100 Index rose 1.3 per cent in a week to 6,685.26 while Germany’s DAX increased two per cent in a week to 9,225.10 points.

Commodities

US dollar remained firm and direction of gold prices was uncertain. The US dollar rose marginally to 81.65 points while COMEX gold declined marginally to US$1,313.90 an ounce. Crude oil fell 2.2 per cent in a week to US$95.50 97.63 per barrel, the lowest in nearly eight months.

Crude palm oil extended its losses last week on weak demand and high inventory. Furthermore, the stronger ringgit made palm oil more expensive.

Bursa Malaysia FCPO plunged 6.3 per cent in a week to RM2,094 per metric tonne, the lowest level in nearly five years.

Observations

The FBM KLCI climbed above the immediate support level that was broken two weeks ago at 1,860 points and rebounded on the long term 200-day moving average last week.

This indicates that the long term up trend is still intact. However, the rebound this week was not strong enough to reverse the bearish trend.

The FBM KLCI is still below the short term 30-day moving average which is currently at 1,876 points and is still below the Ichimoku Cloud indicator. However, the trend may turn bullish if the index can be supported above 1,860 points.

Momentum indicators like the RSI and Momentum Oscillator rebounded and increased steadily in the past one week but still below their mid-levels.

The index is still trading near the bottom band of the Bollinger Bands indicator. These indicators indicate that the momentum is still bearish but weak. Other indicators like MACD are also indicating bearish momentum but there are signs of reversal.

The index should continue its bullish momentum if it can be supported above 1,860 points. The strong bullish performances in the global equity markets and strong Ringgit could be the catalyst to push the index to close higher this week, unless there are unforeseen circumstances.

Henceforth, we expect the index to trend higher this week with a trading range between 1,860 and 1,880 points. Small and medium cap stocks may continue to be in focus this week.

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.