Market to set trend higher

We have expected to market to rebound and trade sideways last week if the FBM KLCI stopped declining. The market found support on Monday and started to rebound. The bullish sentiment was on rising crude oil prices, stronger ringgit and generally bullish global markets performances.

The FBM KLCI increased 1.7 per cent in a week 1,692.49 points, higher then the resistance level that we envisaged last week at 1,780 points. The Malaysian ringgit strengthened sharply against the US dollar from RM4.21 per US dollar a week ago to RM4.06, the strongest in six months.

The volume was slightly higher last week. The average daily trading volume in the past one week was 1.8 billion shares as compared to 1.7 billion two weeks ago. The average trading value increased from RM1.7 billion to RM2.2 billion, a sign of more higher- capped stocks being traded

Foreign institutions continued to become net buyers in Bursa Malaysia as the ringgit strengthens. Net buying from foreign institutions last week (Monday to Friday) was RM979 million and net selling from local institution and retail were RM826 and RM153 million respectively.

In the FBM KLCI, gainers trashed decliners three to one. The top gainers for the week were Sapurakencana Petroleum Bhd (7.2 per cent in a week), RHB Capital Bhd (5.8 per cent) and Astro Malaysia Holdings Bhd (4.9 per cent). The top decliners were Petronas Dagangan Bhd (2.8 per cent), IHH Healthcare Bhd (1.2 per cent) and Kuala Lumpur Kepong Bhd (1.2 per cent).

Asian markets were generally bullish. China’s Shanghai Stock Exchange Composite index rose 3.9 per cent in a week to 2,874.06 points last Friday. Japan’s Nikkei 225 index jumped 5.1 per cent to 17,014.78 points. Hong Kong’s Hang Seng Index increased 4.2 per cent in a week to 20,176.70 points and Singapore’s Straits Times surged 7.1 per cent to 2,837 points.

Markets in US and Europe were bullish as well. The Dow Jones Industrial Average increased 1.5 per cent in a week to 16,943.90 points last Thursday. After a sharp rebound two weeks ago, Germany’s DAX Index jumped 4.5 per cent in a week to 9,751.92 9,331.48 points. London’s FTSE100 increased 1.9 per cent in a week to 6,130.46 points.

The US dollar continued to strengthen against major currencies but pulled back in the past few days and erased some gains. The US dollar index futures increased from 97.3 points a week ago to 97.6 points last Thursday. COMEX Gold increased 2.5 per cent in a week to US$1,264.90 an ounce despite rising equities and stronger US dollar. WTI crude oil rose for the third week, rising 4.8 per cent in a week to US$34.69 per barrel. Crude palm oil in Bursa Malaysia declined 1.5 per cent in a week to RM2,505 per metric ton last Friday on stronger ringgit.

The FBM KLCI rose above its long term 200-day moving average last week and closed above it last Friday. The last time the index was above this moving average was in March last year but only stayed above it for slightly more than a month before falling and trading below it. The index is also above the Ichimoku Cloud. Therefore, the index is in a bullish trend for now. It has to stay above these levels this week to show that there is support to this up trend.

Momentum indicators are increasing and this shows that the bullish trend is strengthening. The RSI indicator continued to increase above its mid-level and the MACD indicator has climbed above its moving average. The index also started to trade at the top band of the Bollinger Bands indicator. The indicators are still below their overbought levels.

Technically, the FBM KLCI is expected to trend higher after resistance levels were broken last week. However, there is resistance at 1,700 points as this level was tested twice but the index failed to stay above it. With the strong bullish momentum, we expect this resistance level to be broken and the index is set to trend higher towards the next resistance level at 1,740 points in the short term.

The bullish markets performances, rising crude oil prices and stronger ringgit may provide the bullish catalyst for the market. The short term trend may be bullish but not the long term.

The increase in gold price is an indication of a cautious market. There is a possibility that this rebound may be a bear trap like what happened in March 2015 when the index broke above the 200- day moving average. Therefore, be cautious and aim for achievable and conservative short term profits in this up trend.