KLCI extends sideways pattern
REVIEW: There were some upward movements on the FBM KLCI over the past week, with much of the gains powered by glove counters as the index moved past 1,600 points.
However, short of breaching the resistance at 1,620, the sideways channel on the FBM KLCI is set to continue.
The volatility on the market was highlighted by intermittent bouts of selling. On Wednesday, the index fell 20 points to 1,590 before bouncing to a mildly positive close at 1,611.42 points.
The jumpiness set the tone for last trading day of the week as well. The index was seen retracing some of the week’s gains in a rush to lock in profits prior to the long weekend. On Thursday, the index lost 7.67 points to 1,603.75.
Going by the experience of past weeks, it would seem that a further rally in glove stocks would be the most likely cause for the FBM KLCI resuming an uptrend. Likewise, profit-taking in the sector would be detrimental to the index given their current weighting.
At the start of the week, hikes in average selling prices and more bullish forecasts by analysts had sent glove stocks on another round of rallies. By Tuesday, Hartalega had overtaken Public Bank as the third most valuable stock on Bursa Malaysia with a market cap of Rm68.21bil.
With glove stocks now being the second and third most valuable counters on the index, the FBM KLCI is increasingly skewed towards the sector.
The increased trading activity on Bursa Malaysia does not look likely to end soon, going by the continually elevated daily trading volumes and values recorded over the week. While the government’s loan moratorium is reaching its end in September, the low interest rate environment should continue to encourage retail investor participation.
The jump in trading values was underlined by the stock exchange operator’s estimate-beating Q2 earnings results.
The counter jumped 62 sen to close at a historical high of RM10.42 on Tuesday.
On the external front, while the coronavirus factor played out heavily on markets, it was apparent that the rising conflict between US and China was creating more anxiety among investors as it threatened to derail the economic recovery.
A surge in demand for gold as a safe haven sent spot prices soaring to a new record, near US$2,000 an ounce. The geopolitical tension also caused uncertainty in the US dollar, which offered some lift to crude oil prices.
Statistics: The major index ended the week 14.14 points, or 0.9%, higher over the previous Friday at 1,603.75. Total turnover for the fourday trading week stood at 45.92 billion shares amounting to Rm25.6bil compared with 53.22 billion shares worth Rm28.76bil in the previous trading week.
Outlook: The FBM KLCI remains on its consolidation path, hovering on both ends of 1,600 points. While the index frequently sought out safety at 1,590 points and dipped below it on several occasions, there was no threat of a drop towards the crucial lower support of 1,560, a breach of which would signal a breakdown.
It was also positive that the index ended on Thursday above the 1,600 level.
Hence, there is still the potential for a breakout of the 1,620 resistance, which would result in the resumption of an uptrend.
Going by the past week’s volatile performance however, investors remained trapped in a state of uncertainty as few positive catalysts gave investors the impetus to sustain a rally.
There is a neutral outlook in the technical indicators, which reflect the current price movement of the index. Resistance for the share lies at 1,620 and 1,650 while support can be found at 1,560 and 1,510.