Glove makers, banks lift FBM KLCI
REVIEW: The rally on Bursa Malaysia was at full throttle over the past week amid a pick-up in global sentinemt, led by Wall Street, as investors believed they had seen the worst of the coronavirus outbreak.
As noted in last week’s article, it seemed that even escalating tensions over the death of George Floyd in the US and the unresolved tensions over Beijing’s growing influence in Hong Kong did not hinder the euphoria that seemed to overtake global equities.
With the growing confidence came larger risk appetite, which has proven beneficial to emerging markets.
The risk remains, however, of the gaping disconnect between surging prices of equities and the prospects for the global economy.
Given the forward-looking nature of stock markets, it appears that investors are looking beyond the current economic malaise.
And if the performance of markets is anything to go by, the future looks bright.
Meanwhile, central banks in Europe including in Germany and the European Central Bank are looking to expand stimulus measures, which is offering a further fillip to the recovery process.
In the US, the Dow Jones jumped over 3% in the week even as US President Donald Trump threatened military action on violent protestors of the Black Lives Matter movement.
The index has risen 41% since its trough on March 23, in defiance of the ongoing coronavirus pandemic.
Meanwhile, the FBM KLCI was seen being lifted in turns by glove makers, and later in the week, by banks as investors looked forward to a return of money inflows from more developed countries to this part of the world.
The rally was spurred on by the strengthening of the ringgit against the US dollar as the latter drifted lower on the ongoing civil unrest and as oil prices continued to rise on the re-starting of global economies.
The stellar advance quickly changed the landscape of the technical charts as the FBM KLCI soared past the 200-day simple moving average (SMA) by midweek trading.
Having crossed above all the key SMAS, the bull market looked set to charge ahead on all cylinders.
On Thursday, the index attempted to close the downside gap left behind in January but ended at its lower limit. Nevertheless, it ended the day with a significant 23.51 points gain at 1,561.84.
A profit-taking mood overcame markets on Friday and the FBM KLCI spent most of the day in the red, ending 5.51 points lower at 1,556.33.
Statistics: The major index ended the week 83.08 points, or 5.6%, higher over the previous Friday at 1,556.33.
Total turnover for the week stood at 46.21 billion shares amounting to Rm32.27bil compared with 23.18 billion shares worth Rm19.53bil in the previous three-day trading week.
Outlook: The FBM KLCI has surpassed its pre-outbreak levels and is now attempting to mark its highest point in the year.
Now that the FBM KLCI is trading above all the key SMAS, the uptrend has certainly taken on legs although the overbought situation in the slow-stochastic and relative strength index indicators offers some pause.
With the negative performance yesterday, the indicators were seen retreating from their highs in what could be the start of a consolidation phase.
The “sell” signal on the slow-stochastic remains unconvincing, although confirmation in the coming session would be taken as a sign of consolidation.
That is not to say that the rally has reached an end.
Given the strong support that has developed below the current trend, there could be a resumption of the trend following a quick breather.
Resistance can be found at 1,570 and 1,600 while support is pegged to 1,550 and 1,530.