Market to move into a correction but bullish trend still intact
Asignificant milestone in Malaysia’s history was achieved last week. The opposition political ally, Pakatan Harapan, led by former Prime Minister of 22 years has defeated Barisan Nasional which has been in power since Malaysia’s independence.
The people has spoken, they wanted a change.
I have mentioned before that investors do not like uncertainty. With the change of a new government, we are moving into an uncharted territory.
The market was closed for three days last week, on the election day and two more days after Pakatan Harapan made a promise that there will be a two days holiday if they win.
Looking back at this, I think it was a good move by Pakatan Harapan. Imagine how the market would react after this historical event.
With the two days public holiday, investors will have more time to evaluate the current market environment and make decisions when the market opens on Monday.
The question that everyone wants to know is how the market is going to perform this week.
First of all, let’s take a look at the markets performances last week. Last Tuesday, the benchmark FBM KLCI rebounded to close marginally higher at 1,846.51 points as compared to the previous Friday’s close at 1,841.83 points. Globally, markets closed higher last week.
Trading volume in Bursa Malaysia was higher as the market went on bargain hunting on Tuesday after a steep decline on Monday.
Foreign institutions and local retail were net sellers at RM505 million and RM114 million respectively. In the index, gainers out paced decliners 16 to 11.
Since the 1994 general elections, the performance of the FBM KLCI has been slightly flat after one year except for year 2008 when the global economy was shaken from the US financial crisis and year 2013 when markets continued to be pumped with liquidity from low interest rates.
This is a year of uncharted territory and hence it will be quite difficult to the historical patterns do determine the performance this time.
However, there are common patterns that can be found. Firstly, the equity market normally turns into an up trend in the intermediate term of three years after a one year correction.
Secondly, trading volume declines as market stays in the side lines waiting for catalysts.
However, the trading volume when the market opens on Monday is going to be higher maybe for a few weeks as market moves into correction and then the volume should decline as market waits for catalysts.
Secondly, we are going to see volatility in the next two to three weeks as reconciliation of portfolios is going to take place.
The market speculates a decline for Barisan Nasional aligned companies and increase for Pakatan Harapan aligned companies.
Technically and fundamentally, the market is still bullish.
For the FBM KLCI, we may see a correction in immediate term when the market opens but as long as it can stay above the support level 1,760 points based on the long term up trend line, the market may continue its bullish trend.
The immediate support level is at 1,800 points and if the index stays above this level, we could expect a stronger bullish movement and the index may climb to historical highs.
Henceforth, a pull back in the stock market could be good opportunities for accumulation as the trend is still bullish, supported by bullish markets performances globally.
Rising crude oil and other commodities prices may help to strengthen the ringgit although in the immediate term, it may weaken because of speculation.
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.