Resistance breakout, upside seen

by **Cals** Thu 12 Jun 2014, 02:59

Business & Markets 2014

Written by Benny Lee

Wednesday, 11 June 2014 10:39

THE market remained cautious last week but yesterday it broke above the immediate resistance level of the short-term sideways trend at 1,870 points. Market sentiment was supported by strong US and regional market performances. The US market was taking higher risks as American employers maintained a solid pace of hiring in May, returning employment to its pre-recession level. However, trading volume on Bursa Malaysia was relatively low as the market continued to be cautious about lower-than-expected corporate earnings in the first quarter.

The FBM KLCI increased 0.2% in a week to close at its highest level in the past eight trading days at 1,876.61 points. Average daily trading volume in the past one week continued to decline to 1.3 billion shares from 1.5 billion shares two weeks ago. Average daily trading value was also low at RM1.6 billion. This shows that market was mostly staying on the sidelines.

Local retail was selling while both local and foreign institutions were buying from Monday to Friday last week. Net buying from local and foreign institutions was RM75.3 million and RM20.1 million respectively. In the KLCI, gainers outpaced decliners three to two in the past one week. The gainers were led by Astro Malaysia Holdings Bhd (+4.6%), MISC Bhd (+4%) and DiGi.Com Bhd (+3.5%) and decliners were led by Tenaga Nasional Bhd (-3%), Petronas Dagangan Bhd (-2%) and Public Bank Bhd (-1.1%)

Markets continued to be slightly bullish last week. Singapore’s Straits Times Index was firm from last week, declining only 0.1% to 3,293.82 points yesterday. Hong Kong’s Hang Seng Index increased only 0.1% to 23,315.74 points while China’s Shanghai Stock Exchange Composite Index increased 0.7% to 2,052.53 points. On Monday, the US Dow Jones Industrial Average increased 1.2% in a week to a record close at 16,943.10 points. London’s FTSE100 Index rose 0.9% to 6,875.00 points, the highest close in almost a month while Germany’s DAX Index added 0.6% to a record close at 10,008.63 points.

The US dollar continued to strengthen for the fourth week against major currencies. The US Dollar Index increased from 80.69 points to 80.78 points, the highest level in four months. The stronger US dollar continues to put pressure on precious metals but prices slightly rebounded. Commodity Exchange gold rebounded to close 0.7% higher in a week to US$1,251.50 (RM4,004.80) an ounce. Crude oil in the New York Mercantile Exchange rose 2% in a week to US$104.54 per barrel. The ringgit strengthened against the stronger US dollar. The ringgit is currently at 3.20 per US dollar, the strongest level in six months as compared with RM3.23 a week ago. Crude palm oil in Bursa remained firm in a week at RM2,386 per tonne.

The KLCI has broken out from its sideways correction mode. The trend is technically bullish as the index is above the increasing short-term 30-day moving average and the Ichimoku Cloud. The index is also above the up-trend line support level. This shows that market confidence is increasing as it is able to move higher from the averages/support level. The close above 1,870 points indicates that the market is geared to take higher risks.

The breakout yesterday indicates that the weak momentum is turning strong. Indicators like the RSI and Momentum Oscillator are starting to increase after whipsawing their mid-levels in the past three weeks. Furthermore, the index has also climbed above the mid-band of the Bollinger Bands but does not show strong buying strength unless the index breaks above the top band at 1,887 points.

The technical indicators are still indicating a sideways correction for the KLCI as there is still a resistance at 1,880 points but the bias has turned bullish. The breakout above the resistance level at 1,870 points indicates that the index is set to test the historical high at 1,887 points. However, the breakout was on low volume and this may not create a strong momentum. Therefore, if the KLCI fails to stay above 1,870 points then expect further sideways correction.

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 judgement or seek professional advice for your investment decisions.

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This article first appeared in The Edge Financial Daily, on June 11, 2014.[/size]