Mild technical rebound expected
19/07/2017 (The Edge Markets) - The local market bucked the global market trend last week, despite Bank Negara Malaysia’s (BNM) decision to keep the overnight policy rate (OPR) at 3% last Thursday. The market wasn’t too optimistic and the FBM KLCI failed to rebound last Friday. On a weekly basis, the FBM KLCI declined 0.3% to 1,755 points last Friday. The market had been flat since last Friday and the index closed at 1,754.92 points yesterday.
Trading activity increased quite significantly last week. The average daily trading volume increased from 1.6 billion shares two weeks ago to 1.9 billion shares. However, the average daily trading value increased from RM1.8 billion to only RM1.9 billion. This indicates that more lower-capped counters, which are normally traded by retail market players, were being traded.
Last week, foreign institutions were buying as the ringgit strengthened slightly against the US dollar. Net buying from foreign institutions was RM305 million, while net selling from local institutions and retailers were RM273 million and RM32 million respectively. The ringgit strengthened from RM4.30 two weeks ago to RM4.29 to a US dollar last Friday.
Gainers outweighted decliners 17 to 11 on the FBM KLCI. The top gainers for the week were Genting Malaysia Bhd (+3.9% in a week to RM9.55), Hong Leong Financial Group Bhd (+3.5% to RM17.02) and KLCC Properties & REITS — Stapled Securities Bhd (+2.1% to RM7.90). The top decliners were DiGi.Com Bhd (-6.8% to RM4.66), Petronas Chemicals Group Bhd (-3.4% to RM6.85) and CIMB Group Holdings Bhd (-3.2% to RM6.34).
Global markets were generally bullish last week, led by the US market which rose to historical highs. The US Dow Jones Industrial Average increased 1% to 21,637.74 points last Friday, a historical high. In Asia, Hong Kong led the market with an increase of 4.1% in a week to 26,389.23 points last Friday, the highest in two years.
Commodities prices closed generally higher last week, but the US dollar weakened against major currencies. The US Dollar Index fell from 96 points two weeks ago to 95.1 points last Friday. The Commodity Exchange gold price rose 1.3% in a week to US$1,228.00 (RM5,268.12) an ounce. Crude oil (Brent) increased 4.7% to US$49.09 per barrel. In the local market, crude palm oil futures ended up 0.5% higher at RM2,566 per tonne.
We had expected the bearish trend to extend last week. The market declined only marginally as bullish performances in the global market helped to provide some support. Nevertheless, the FBM KLCI is still below the immediate resistance level at 1,760 points.
Trend-wise, the FBM KLCI remains bearish in the short term, below the short-term 30-day moving average and immediate resistance level. Furthermore, the index is now below the Ichimoku Cloud indicator, and the Cloud is changing direction.
Momentum of the bearish trend has been slightly weaker in the past one week. Indicators like the Relative Strength Index and momentum oscillator are below their mid-levels, but are moving sideways. The moving average convergence divergence indicator is also below zero and is declining, indicating strong bearish sentiment. Furthermore, the FBM KLCI is trading near the bottom band of the Bollinger Bands indicator.
Market sentiment may have been bearish in the past one week. However, this may improve this week as market confidence may be boosted by bullish global market performances and rebounds in commodities prices, and with BNM maintaining the OPR at 3%.
Therefore, the FBM KLCI is expected to stage a mild technical rebound this week, and test the resistance level between 1,760 points (based on the immediate resistance level mentioned above) and 1,770 points (based on the short-term 30-day moving average). However, the market may continue its bearish trend if it fails to break and stay above the resistance level.
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 investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.