KLCI - Market breaks resistance but still weak

Market breaks resistance but still weak
Business & Markets 2013
Written by Benny Lee
Wednesday, 12 June 2013 10:33


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AFTER trading sideways for about a month, the market finally broke above its sideways correction resistance level but pulled back immediately yesterday. Last week I said the correction may be over soon and there is a high probability of prices climbing higher. This happened on Monday, when markets in the region rebounded after falling in a steep downward correction in the past three weeks. However, the market failed to close above 1,790 points to boost confidence.

The local and regional markets pulled back yesterday as investors were being cautious. The FBM KLCI failed to close at a record high although there was a high prospect of doing so in the first trading session yesterday. The KLCI was almost unchanged from last week at 1,779.57 points. Trading volume has eased a little from a daily average of 2.3 billion shares two weeks ago to 2.1 billion shares in the past one week. Top gainers in the KLCI component stocks in the past one week were GENTING BHD [] (+3.75%), IOI Corp Bhd (+2.46%) and MALAYAN BANKING BHD [] (+2.14%) while top decliners were UEM LAND HOLDINGS BHD [] (-5.81%), Astro Malaysia Holdings Bhd (-4.76%) and Bumi Armada Bhd (-4%).

Markets in the West were also being cautious. After rebounding sharply last Friday, the markets ended up mostly firm on Monday. The markets still worry about the global economic development, especially in China and the US Federal Reserve which hinted that its bond buying stimulus may end soon.

The US Dow Jones Industrial Average was down 0.1% in a week at 15,238.59 points on Monday. There is still resistance in the markets despite a strong rebound last Friday as markets continue to find opportunities to sell when there is a rebound. The UK’s FTSE100 index declined 1.9% to 6,400.45 points in a week while Germany’s DAX increased 0.3% to 8,307.69 points.
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Asian markets shared the same sentiment. Monday’s confidence was short-lived as markets pulled back yesterday and still ended up negative on a week-to-week basis. The slowing growth in China’s economy and Bank of Japan’s decision not to implement further stimulus measures dragged markets lower yesterday. Japan’s Nikkei 225 index declined 1.6% in a week to 13,317.62 points. Hong Kong’s Hang Seng Index did not show any rebound as the other markets in the past one week and suffered a 4.2% decline in a week to 21,354.66 points. China’s Shanghai Stock Exchange Composite Index declined 2.7% to 2,210.9 points. Singapore Straits Times Index declined 3.7% to 3,170.38 points.

The US dollar continued to weaken against a basket of major currencies. The US dollar index fell from 82.69 points a week ago to 81.9 points. The ringgit suffered a blow as well. It weakened against the US dollar from 3.09 to 3.15. Commodity prices were weak as well.

Gold fell below US$1,400 (RM4,410) an ounce after trying to stay above this level last week. Commodity Exchange (Comex) gold declined 1.7% in a week to US$1,386.10. However, the crude oil price rose 2.5% to US$95.77 a barrel. Crude palm oil (CPO) rose on a weaker ringgit but faces pressure on increasing output. CPO for August delivery rose 3.3% in a week to RM2,455 per tonne.

Technically, we have a breakout in the sideways range resistance but it is still weak. Short- and long-term 30- and 90-day moving averages are still increasing and the 30-day moving average is currently slightly under the KLCI. The index has been in a divergence against the moving average for the past three weeks, which means that the upward momentum is weak. The momentum indicators like RSI and MACD also confirm this. However, the widening Ichimoku Cloud indicator indicates that there is still potential upside for the KLCI.

The immediate support level is at 1,755 points and as long as the index stays above this level, the market may remain bullish. However, the weakness in the current uptrend indicates strong resistance, making the 1,850-point target level seem so distant. Immediate resistance is at 1,790 points.

This is still a trading market but traders should remain cautious and as I mentioned last week, aim for small returns. Weak global market performances may continue to weaken market sentiment.

Long-term investing is not an option at the moment until there is a significant pullback. Dividend yields are low at current prices.

Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia committed to offering the best services to a wide range of customers. He can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions.


This article first appeared in The Edge Financial Daily, on June 12, 2013.