Market Turning Bearish

13/09/2014 (Borneo Post) - Daily FBM KLCI chart as at September 12, 2014 using Next VIEW Advisor Professional

The market rebounded earlier in the week but there were no strength. The FBM KLCI rose to a high of 1,876.21 points, near the immediate resistance level last week. However, the market pulled back and the FBM KLCI close 0.7 per cent lower in a week to 1,855.64 points.

Market was cautious on the economic development in Europe. The strong US dollar was predominantly caused by the weakening euro, hammered by worsening economic numbers and further easing of monetary policy by the European Central Bank the past month.

The declining trading volume indicates market cautiousness. The Average daily volume fell to 2.4 billion shares last week as compared to 2.9 billion shares two weeks ago. Average trading value was RM2.1 billion as compared to RM2.3 billion two weeks ago and this indicates that there is a shift in the trading of lower cap stocks to higher cap stocks.

Total market valuation fell only RM2 billion to RM1,783 billion from the previous week. Retail market confidence deteriorated and foreign institutions were not so keen as the Malaysian ringgit weakened against the US dollar.

Local institutions were net buyers last week from Monday to Thursday at RM48.7 million. Foreign institutions and retail were net selling at RM24.4 and RM24.3 million respectively. In the FBM KLCI, decliners out-paced gainers three to two. Gainers were led by BAT (2.9 per cent), IOIPG (2.8 per cent) and HLFG (2.6 per cent) and decliners in the index were FGV (4.9 per cent), SIME (4.9 per cent) and PPB (3.2 per cent).

 

Regional Indices

Markets were generally bullish in the past one week, led by China markets. Singapore’s Straits Times Index increased marginally in a week at 3,345.55 points. Hong Kong’s Hang Seng Index declined 2.5 per cent in a week to 24,595.32 points while China’s Shanghai Stock Exchange Composite Index rose only 0.2 per cent in a week to 2,331.95 points, the highest level in 18 months. Japan’s Nikkei 225 rose 1.8 per cent to 15,948.29 points, the highest level in 8 months.

Markets pulled back in Europe while the US market was buoyant on strong US dollar. The US dollar index, which measures the US dollar against a basket of major currencies including the euro and pound sterling, increased from 83.83 points two weeks ago to 84.46 points.

On Thursday, the US Dow Jones Industrial Average marginally declined 0.1 per cent in a week to 17,049.006 points. London’s FTSE100 Index declined 1.1 per cent in a week to 6,799.62 points and Germany’s DAX fell only 0.3 per cent to 9,691.28 points.

 

Commodities

Precious metals continued to decline on strong US dollar. COMEX gold declined 1.6 per cent in a week to US$1,240.90. Crude oil also declined 1.6 per cent in a week to US$93.05 per barrel.

Crude palm oil continued to increase after a rebound two weeks ago on stronger demand after the government provided export tax exemptions and weaker ringgit. Crude palm oil futures in Bursa increased 2.8 per cent in a week to RM2,084 per metric tonne.

The Malaysian ringgit weakened against the US dollar from RM3.17 a week ago to RM3.20.

 

Observations

The FBM KLCI failed to turn bullish last week as it failed to break above the immediate resistance level at 1,880 points. The FBM KLCI has been whip-sawing against the declining short term 30-day moving average in the past two weeks but started to decline and break below the moving average and the immediate support level at 1,860 points last week, indicating that the trend has turned bearish.

Momentum indicators like the RSI, MACD and Momentum Oscillator are showing that the bearish momentum is getting stronger. These indicators broke support levels and the MACD has also fallen below its moving average or trigger line.

Furthermore, the FBM KLCI has fallen below the bottom band of the Bollinger Band indicator. Therefore, the strong selling pressure may cause market to continue to decline in the short term.

The index failed to break above the immediate resistance level and broke below the support level instead. Technically, the FBM KLCI is continuing its short term down trend while remaining bullish in the short term.

The long term 200-day moving average is at 1,850 points and this is where the FBM KLCI is expected to test. A break below the support range between 1,840 and 1,850 points could turn the long term trend into a bearish one.

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.