Rebound may not turn into a rally if the index fails to climb above 1,775 points
The FBM KLCI plunged to its lowest level this year in the first two trading days last week. However, it rebounded towards the weekend and hence staged a volatile week. Market sentiment was bearish as foreign institutions continued their selling spree. The FBM KLCI declined 2.3 per cent in a week to 1,756.38 after rebounding from a low of 1,709.51 points on Wednesday.
Trading volume has increased significantly last week. The average daily trading volume rose to 3.4 billion shares from 2.6 billion two weeks ago and the average daily trading value increased to RM4.7 billion from RM3.2 billion.
This indicates selling pressure on higher market capped counters.
Foreign institutions continued to be the net sellers and was higher than the previous week. Net sell from foreign institutions was RM1,269 million while net buys from local institutions and local retail were RM817 million and RM452 million respectively.
In the FBM KLCI, decliners beat gainers six to one. The top gainers for the week were MISC Bhd (3.9 per cent to RM6.19), Genting Bhd (2.3 per cent to RM8.10) and AMMB Holdings Bhd (0.8 per cent to RM3.61).
The top decliners were Astro Malaysia Holdings Bhd (11.9 per cent to RM1.41), Sime Darby Bhd (11.2 per cent to RM2.45) and Telekom Malaysia Bhd (eight per cent to RM3.69).
The Malaysian market was not the only bearish market. Generally, markets globally closed lower. Singapore’s Straits Times Index fell 2.4 per cent.
The US Dow Jones Industrial Average and London’s FTSE100 index fell marginally lower while most European markets fell about 1.5 per cent.
The US dollar was firm against major currencies last week after weeks of gains. The US dollar index closed at 94.2 points last Friday as compared to 94.3 points the week before.
The ringgit slightly weakened against the US dollar and was at RM3.99 last Friday as compared to RM3.98 against a US dollar the week before.
Crude oil rebounded and closed higher last week. Crude oil (Brent) increased 0.5 per cent in a week to US$76.70 a barrel. Gold price (COMEX) was marginally lower at US$1,297.90 as compared to the previous week. In the local market, crude palm oil futures declined 0.7 per cent to RM2,439 per metric tonne.
The FBM KLCI has found support at 1,710 points in the bearish. This is also the support level for the past two years. The immediate resistance level is at 1,775 points which is Monday’s low as there was a gap between Monday and Wednesday.
Technically, the trend is strongly bearish in both the short and long term. The FBM KLCI continued to decline below the short term 30- and 200- day moving averages last week. Furthermore, the index is below the Ichimoku Cloud and the Cloud is also bearish.
Momentum indicators like the RSI, MACD and Momentum Oscillator continue to indicate a strong bearish sentiment. Also, the Bollinger Bands indicator is expanding and the FBM KLCI continued to trade near the bottom band. However, the RSI indicator indicates that the index is oversold.
Will the rebound late last week turn into a rally?
Last week, the index also rebounded last Friday but was not able to rally and declined further. It was not able to climb above the immediate resistance level at 1,800 points.
This week could be the same if the index is not able to overcome the immediate resistance now at 1,775 points.
If it fails to break this immediate resistance, then expect further declines towards the psychological support level at 1,700 points.
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 an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment advisor.