Market faces resistance but the bulls are still eager
Last week, the equity market was directionless as the market was ripe for some profit taking after 6 weeks of gains. However, the benchmark FBM KLCI still managed to close higher on a week-to-week basis. The index rose 0.3 per cent to 1,828,83 points in a week. This indicates that the market is being well-supported. Stronger Malaysian ringgit and bullish global markets performances were the main bullish catalysts.
Trading volume remained high above five billion shares last week. The average daily trading volume has slightly declined to 5.2 billion shares from 5.5 billion shares two weeks ago. The average daily trading value fell to RM3.5 billion from RM3.9 billion. Same as last week, lower-capped stocks which are normally traded by retail market participants remained as the main flavour.
Meanwhile, the ringgit continued to strengthen against the US dollar and is now at its highest level against the US dollar in nearly 2.5 years. This continued to attract foreign institutional buying. Net buys from foreign institutions and local retail were RM702 million and RM32 million respectively. Net sell from local institutions was RM734 million.
In the FBM KLCI, gainers outpaced decliners 17 to 11 last week. The top gainers for the week were YTL Corporation Bhd (4.1 per cent in a week to RM1.54), Sime Darby Bhd (3.7 per cent to RM2.80) and Genting Bhd (3.4 per cent to RM9.68). The top decliners were Price Metal Petronas Gas Bhd (4.2 per cent to RM5.46), Astro Malaysia Holdings Bhd (4.1 per cent to RM4.70) and Price Metal Aluminium Holdings Bhd (1.8 per cent to RM9.36).
In the global market scene, the bulls continued to charge. Hong Kong’s Hang Seng Index and US Dow Jones Industrial Average rose to historical highs last week. Singapore’s Straits Times Index climbed to its highest level in 10 years while markets like Japan and China rose o multi-year highs.
In the foreign exchange, the US dollar remained in a down-hill slope. The US dollar Index fell to 90.7 points last Friday from 90.9 points the week before. The Malaysian ringgit strengthened to RM3.94 against the US dollar last Friday from RM3.97 the week before.
Commodities prices fell for a correction last week. Crude oil (Brent futures) declined 1.7 per cent in a week to close at US$68.65 per barrel after briefly climbing above US$70.00 briefly last week. Gold (COMEX futures) pulled back from a four-month high and closed 0.5 per cent lower at US$1,331.10 an ounce, the highest in four months. In Bursa Malaysia, crude palm oil futures plunged 4.1 per cent in a week to close at RM2,441 per metric tonne last Friday as the European Union moved to restrict the use of palm oil in biodiesel in Europe.
The market started on a slightly bearish note on profit taking last week but managed to rebound last Friday. This indicates that there is support in the market despite the resistance as the local bulls are still eager to catch up with the stronger bullish momentum globally.
Technically, the FBM KLCI remained strongly bullish above the short and long term 30 and 200 day moving averages and these averages continued to increase. Furthermore, the index is well above Ichimoku Cloud and managed to stay above the support level at 1,790 points.
However, the momentum indicators like the RSI, MACD and Momentum Oscillator are starting show some divergence against the FBM KLCI trend. This indicates a weak bullish momentum. A weak bullish momentum means that the bullish trend is facing resistance in the bullish trend and hence the rate of increase is lower.
The correction in the market in the past two weeks saw the index forming a new immediate support level at 1,812 points. After a rebound last week, the market is set to continue its bullish momentum despite after gaining for seven consecutive weeks.
Henceforth, the FBM KLCI is expected to extend its bullish rally towards the next resistance level at 1,860 points as long as it can stay above the immediate support level at 1,812 points. Stronger ringgit and bullish global markets performances can boost market sentiment. Technically, the ringgit is expected to strengthened to RM3.80 to a US dollar in the short term of six months.
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.