Market to trade sideways

by **Cals** Wed 03 Dec 2014, 21:18

Market to trade sideways

PLUNGING crude oil prices and the weak ringgit weighed down Bursa Malaysia in the past week. I mentioned in the previous week that the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) was still in a bearish trend despite having a rebound and resistance at 1,850 points.
The index failed to break the resistance level and its bearish trend. Global markets were still bullish as lower crude oil prices are favourable to economic growth. However, our market, which has oil and gas companies in the index, was hit. Plantation companies were also affected by declining crude oil prices as it affects demand for biodiesel.
The KLCI fell 2.9% in a week to 1,785.97 points after rebounding from a low of 1,763.55 points yesterday. Trading volume has slightly increased in the past week with foreign institutions continuing to cash out on the weak ringgit. Average daily trading volume in the past week increased to 2.1 billion shares from 2 billion shares two weeks ago. The average daily trading value in the past week was RM0.1 billion higher than the previous week at RM2.1 billion.
Foreign institutions were the sole net seller last week. Net selling from foreign institutions amounted to RM108.9 million while local institutions and local retail net buying were RM96.9 million and RM12 million respectively. In the KLCI, decliners outnumbered gainers 5 to 1. Gainers were led by Genting Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+4.0% from last week), IOI Corporation Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+3.2%) and YTL Corporation Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+1.9%) while decliners in the index were led by SapuraKencana Petroleum Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-21.5%), Petronas Dagangan Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-12.8%) and Felda Global Venture Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-12.3%).
Markets in Asia were mixed in the past week but the bulls continued to dominate China. China’s Shanghai Stock Exchange Composite jumped 7.6% in a week to its highest level in more than three years at 2,763.32 points. Japan’s Nikkei 225 increased 1.5% in a week to 17,663.22 points, the highest level in seven years. However, Hong Kong’s Hang Seng Index declined 0.7% in a week to 23,654.3 points. Singapore’s Straits Times Index also fell 0.7% in a week to 3,322.32 points
The US market took a breather from its bullish trend in the past week while European markets were mixed. On Monday, the US Dow Jones Industrial Average declined 0.2% to 17,776.80 points after pulling back from a record close two weeks ago. London’s FTSE100 Index declined 1.1% to 6,656.37 and Germany’s DAX rose 1.8% to 9,963.51 points. The US Dollar index declined marginally from last week to 87.98 points. The Malaysian ringgit weakened from 3.36 a week ago to 3.43 against the US dollar.
Gold was bearish throughout the past week but a strong rebound on Monday pushed the price to close higher than the previous week. Comex gold increased 1.2% in a week to US$1,211.90 (RM4,144.70) an ounce after rebounding from a low of US$1,149.50. Nymex WTI crude oil declined 8.2% in a week to US$69.31 per barrel. Crude palm oil futures on Bursa Malaysia fell 3.6% in a week to RM2,139 per tonne on falling price and weak demand in November.
The KLCI fell below the short-term 30-day moving average and Ichimoku Cloud indicators after breaking above these two indicators a week ago. The market turned bearish after the index failed to break above the immediate resistance level at 1,850 points. This was also where the long-term 200-day moving average was. So basically, the index remains in a bearish trend.
Momentum indicators turned bearish again. The RSI fell below its mid-level and the MACD indicator crossed below its moving average. Furthermore, the Bollinger Bands are expanding with the KLCI trading at the bottom band. In addition, the Ichimoku Cloud indicator is currently narrow and this indicates that the index can easily whip-saw. Moving forward, the Cloud is in a whipsaw and this indicator is weak in providing support or resistance.
The market is currently being supported at the 1,760 points level. Like I had mentioned in my previous article, this support level is crucial as it is the confirmation of a longer term bearish trend reversal pattern. A breakout below this level could send the KLCI to 1,650 points based on the pattern price target. However, the index is expected to be supported above this level as the rebound yesterday showed some bargain hunting. Henceforth, I am expecting the KLCI to be trending sideways as the Cloud indicator is in a whipsaw mode and range between 1,770 and 1,810 points.
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Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [You must be registered and logged in to see this link.]. 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.

This article first appeared in The Edge Financial Daily, on December 3, 2014.