Rebound expected this week
Last week, I mentioned that the market is expected to be bullish but cautious. The market initially started on bullish note but pulled back after the FBM KLCI climbed to a two-year intraday high last Tuesday. However, the market was supported on higher than expected GDP growth. The first quarter GDP this year was 5.6 per cent as compared to 4.5 per cent in the previous quarter.
The FBM KLCI declined 0.4 per cent in a week to 1,768.28 points last Friday after pulling back from an intraday high of 1,787.54 points last Tuesday.
The average trading volume increased from 3.4 billion shares two weeks ago to 3.5 billion shares last week. The average daily trading value increased from RM2.9 billion to RM3.3 billion and this indicates more higher-capped counters were being traded.
Foreign institutions remained as net buyers in Bursa Malaysia amid at lower margins as ringgit strengthens.
Net buys from foreign institutions were RM192 million and RM39 million from local retail. Net sell from local institutions was RM231 million. The ringgit was stronger against the Malaysian ringgit from RM4.34 to RM4.32 to a US dollar last Friday.
In the FBM KLCI, decliners outpaced gainers nine to five. The top gainers for the week were Petronas Dagangan Bhd (3.2 per cent in a week to RM24.76), Petronas Gas Bhd (2.2 per cent to RM19) and Petronas Chemicals Group Bhd (1.4 per cent to RM7.33). The top decliners were IHH Healthcare Bhd (2.8 per cent to RM6), Astro Malaysia Holdings Bhd (2.6 per cent to RM2.67) and RHB Capital Bhd (2.5 per cent to RM5.40).
Global Markets performances were mixed last week. Most markets in Asia declined except for China markets including Hong Kong. Markets in Europe mostly ended lower except for London.
The US dollar index, which measures the US dollar against a basket of major currencies, fell from 99.2 points to a six-month low of 97.1 points last Friday. Crude oil (Brent) increased 5.7 per cent in a week to US$53.80 per barrel. Gold price in COMEX rose 2.3 per cent to US$1,255.70 an ounce. Locally, crude palm oil declined 0.8 per cent in a week to RM2,635 per metric tonne last Friday.
The sideways (directionless) trend range for the FBM KLCI is between the support level at 1,750 and resistance level at 1,780 points. The index tested the resistance last week but failed to stay above it. The FBM KLCI then pulled back close to the support level before rebounding to close in the middle of the sideways range. This indicates that the market is still directionless.
However, the FBM KLCI is still in a bullish trend. The index is above the short and long term 30 and 200-day moving averages, up trend channel support line and the Ichimoku Cloud.
The Ichimoku Cloud is seen expanding upwards and this indicates that the bullish trend is being supported well despite staying sideways for the past few weeks.
The momentum indicators are bullish as well. However, bearish divergences are starting to develop. The RSI, Momentum Oscillator and MACD indicators are in a bearish divergence with the FBM KLCI.
Furthermore, the Bollinger Bands are contracting. Therefore, these indicators indicate a weak bullish trend, as reflected in the past two weeks of directionless movement.
The market is set to rebound to test the resistance level at 1,780 points once again and there is a higher chance of it staying above this level. If this happens, we are going to expect the index to climb higher towards 1,800 points.
The stronger quarterly GDP figure could boost market confidence and stronger ringgit and higher crude oil prices could be the bullish catalyst for the market.
Nevertheless, the market also should be cautious as the technical indicators showed a bearish divergence.
The bearish momentum could strengthen only if the FBM KLCI breaks below the support level at 1,750 points. The market should remain bullish as long as the index stays above this level.
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.