Profit-taking stalks the market
Review: While trading volume remained high and the FBM KLCI edged higher, breadth in the broader market was largely negative during the course of the week with more losing counters than gainers. Institutional investors continued paring down their holdings while foreign investors mopped up.
On the forex market, the US dollar continued to weaken against global currencies. The expected unwinding of monetary stimulus in global economies, possibly in the EU, continued to put pressure on the greenback while fears of a US government shutdown over the Federal budget added to the slide.
This was bully for the ringgit, which pushed forward on greenback weakness and the prospects of Bank Negara raising interest rates, bringing the local currency to the 3.93 level.
Nevertheless, this steady rise of the ringgit has analysts noting that it has milked the rewards of a promising economy and should retrace some gains as soon as the US dollar finds its footing.
Also bullish for Bursa Malaysia, oil prices continued to rise during the week, moving inverse to the US dollar. Brent breached and then hovered near the US$70 a barrel mark while West Texas Intermediate crude soared above US$64 a barrel.
Monday’s opening on the stock exchange set the tone for the first half of the week. While chalking up a positive close of 1,827.95 points on the FBM KLCI, there was notable selling interest in other indexes on the stock exchange, signalling market weakness.
Moving at a slower pace ahead of the US market holiday, most Asian markets (ex-China) edged to new record highs, energised by Wall Street’s stellar performance in the previous week and in anticipation of the start of a good earnings season.
Oil price movements continued to capture the imagination of the domestic market on Tuesday as investors picked up oil and gas small caps. However, for the broader market, there were few fresh leads for investors, leading to a little-changed closing result of 1.826.03 points.
In virtual currency trading, news that Seoul was contemplating a move towards a ban of cryptocurrency shook the markets. On the Luxembourg-based Bitstamp exchange, bitcoin dropped about a fifth of its value to US$11,386 apiece.
The news holds more relevance when bearing in mind that Deutsche Bank cited a crash in the bitcoin markets as a risk to broader financial markets in 2018.
At midweek, there was a retracement in oil prices, which dampened the red-hot rise of Asian markets. There was also slip in energy counters the previous night on Wall Street as General Electric mulled the prospect of breaking up and spinning off its business divisions into independent companies.
A correction was not yet forthcoming on the local market as the FBM KLCI moved up 2.6 points to 1,828.63. However, the slight gain couldn’t mask the likelihood that the market was taking on negative pressure, given the loss of momentum in the technical indicators.
Moving into the latter half of the trading week, the local index pulled back on Thursday in line with investors cashing in their chips. It closed 7.03 points lower at 1,821.60.
Elsewhere, certain Asian markets such as Japan backed down from record highs. China’s equities, however, trended higher even as it announced fourth-quarter 2017 gross domestic product growth of 6.8%, beating analysts’ forecasts of 6.7%.
Closing off the week on Friday, the FBM KLCI moved higher by 7.23 points to 1,828.83, giving the index a positive result over the previous Friday although remaining within the week’s trading range.
Statistics: On a Friday-to-Friday basis, the major index was up 6.16 points or 0.3% to 1,828.83 yesterday, versus 1,822.67 on Jan 12. Total turnover for the trading week stood at 25.32 billion shares amounting to RM15.97bil, compared with 27.14 billion shares valued at RM19.11bil exchanging hands the previous week.
Outlook: The market took on a sideways pattern. Looking at the daily price chart, the FBM KLCI hovered near the 1,825 level over the past week as momentum waned and a corrective mood began to take hold.
Fortunately for the market, the external environment has remained positive with supportive commodity prices and much cheer over the global economic situation keeping investors optimistic of sustained upsides.
These positive leads, however, are now weeks old since the start of the rally and one wonders how much longer before they are fully priced in.
Some fresh leads in the coming week may help reinvigorate the market and set off another leg of gains. Although investor confidence is holding up still, the lure of profit-taking stalks the market.
The daily price chart suggests consolidation as the market cools off and awaits new direction. Going to the technical indicators, the slow stochastic is falling and the moving average convergence/divergence slipping beneath the trigger line.
The FBM KLCI remains batting near the 1,825 key level while a renewed push will be seen if it crosses 1,832. In the event of a correction, support rests at 1,812.