Market to be quieter and directionless

Market to be quieter and directionless
Business & Markets 2013
Written by Benny Lee
Wednesday, 10 July 2013 09:49

THE market direction was uncertain last week after a strong rebound two weeks ago. There were no strong positive catalysts to push the already technically overbought market despite rebounds in the global markets. However, consumer spending may decline with Bank Negara Malaysia's plan to tighten credit to consumers and this may dampen investor sentiment. While key heavyweight blue-chip counters are being supported, retail investor-friendly penny stocks continued to be weak in both price and volume.

Technically, the FBM KLCI is still in an uptrend and the immediate resistance level remained at 1,780 points. Last Friday, the index attempted to climb above this level and failed. This indicates that resistance is strong at this level. The index declined only 0.3% in a week to 1,766.49 points after trading in a tight trading range between 1,762.87 and 1,778.06 points. Trading volume was firm in the past week compared with the previous week with 1.4 billion shares traded on average daily. The immediate support level is at 1,740 points and as long as it can stay above this level, the market is still bullish.

China's market started to weaken again after a rebound two weeks ago as recent economic data indicate weakening growth. China's Shanghai Stock Exchange Composite Index increased 2.4% in a week to 1,965.45 points. Torn between the US market recovery and China's slowdown, the Hong Kong market was volatile and directionless. The Hang Seng Index ended up almost unchanged in a week at 20,683.01 points but the trading range was between 20,120 and 21,004 points. Singapore was also uncertain as the Straits Times Index increased only 0.2% to 3,178.63 points.

The US market continues to grow stronger as recent economic data shows stronger job data and the US dollar climbed to near three year highs against major currencies. The US Dow Jones Industrial Average increased 1.7% in a week to 15,224.69 points while the broader S&P500 index rose 1.6% to 1,640.46 on Monday. China's slowing economic growth was overshadowed by the US and Japan's economic recovery, which boosted market confidence in the UK. FTSE100 index rose 2.2% in a week to 6,450.07 but Germany's DAX traded sideways and declined 0.2% to 7,968.54 points.

The US dollar surged against a basket of major currencies in the past week to a near three-year high. The US dollar index rose from 83.25 points a week ago to 84.41 points. The US dollar has also strengthened against the ringgit, which is currently at 3.21 against a US dollar compared with 3.16 a week ago.

The gold price, which rebounded two weeks ago, failed to rally and declined 1.3% in a week to US$1,235.70 (RM394.19) an ounce. Tension in Egypt pushed oil prices higher. West Texas Intermediate crude oil rose 5.5% in a week to US$103.05 per barrel. Crude palm oil (CPO) prices rebounded on strong prices. CPO futures for September delivery rose 2.6% in a week to RM2,399 per tonne.

Technically, the KLCI is still in an uptrend. The index is above the long-term 200-day moving average and is currently at the short- term 30-day moving average. However, it recently pulled back into the Ichimoku Cloud indicator which shows that the market is directionless. The failure to climb above the immediate resistance level of 1,780 points shows that the bullish rally is losing its momentum because the market takes profits whenever it starts to rebound.

Momentum indicators in the KLCI remained flat after last week's directionless movement. Momentum indicators like RSI, MACD and Momentum Oscillator have pulled back to their middle levels. The MACD indicator which has just crossed above its nine-day average last week is still above the average but the spread between the two lines is thin. The Bollinger Bands have also started to contract. These indicators show a typical market correction and this is the trend since the market gapped up after the general election.

For this week I am expecting the index to continue trading sideways with a trading range between 1,760 and 1,780 points. If the index can break above 1,780, expect it to climb higher and possibly test 1,800 points.

If it fails to do so in the next few days, expect the market to remain flat. Furthermore, with the fasting month starting tomorrow, the market may be a little quiet and continue to drift sideways unless major news wakes the market up.


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 July 10, 2013.