Market confidence still weak

by **Cals** Wed 15 Jun 2016, 23:34

Market confidence still weak

By [url=http://www.theedgemarkets.com/my/article/market-confidence-still-weak?type=Latest News#][/url]Benny Lee / The Edge Financial Daily | June 15, 2016 : 11:12 AM MYT
This article first appeared in The Edge Financial Daily, on June 15, 2016.

After trading sideways for the past three weeks, the FBM KLCI finally broke above the immediate resistance level of the sideways trend at 1,640 points. However, the market pulled back and erased most of the gains towards the end of the week. The FBM KLCI increased only 0.3% in a week to 1,641.22 points last Friday after pulling back from a high of 1,664.04 points. This shows that market confidence is still weak.

Trading volume remained firm compared to the past few weeks at 1.8 billion shares. The volume has been at this level for the past three weeks. This is another indication of weak market confidence as the volume did not increase despite a breakout. Average trading value declined from RM3 billion to RM1.8 billion.

Foreign institutions were buying in the earlier part of the week, but started to strongly sell towards the end of the week as the ringgit weakened. Net selling by foreign institutions was RM170 million and RM23 million by local retailers. Net buying by local institutions was RM193 million. The ringgit slightly strengthened against the US dollar from 4.09 two Fridays ago to 4.08.

For the FBM KLCI, gainers marginally outpaced decliners seven to six. Top gainers for the week were UMW Holdings Bhd (+10.3% in a week to RM5.57), Maxis Bhd (+4.2% to RM5.75) and IOI Corp Bhd (+2.9% to RM4.33). Top decliners were SapuraKencana Petroleum Bhd (-2.4% to RM1.64), AMMB Holdings Bhd (-2.2% to RM4.37) and Hong Leong Financial Group Bhd (-1.4% to RM14.60).

Most markets’ performances in Asia were mixed. Hong Kong’s Hang Seng Index increased only 0.4% in a week to 21,042.64 points and Singapore’s Straits Times Index increased 0.5% to 2,822.97 points last Friday. However, Japan’s Nikkei 225 declined 0.2% to 16,601.36 points. China’s Shanghai Stock Exchange Composite Index fell 0.4% to 2,926.70 points last Wednesday (Market was closed last Thursday and Friday for holidays).

The US market was marginally higher, but European markets fell as Britain is getting close to exiting the European Union. The US Dow Jones Industrial Average increased only 0.3% in a week to 17,865.34 points last Friday. Germany’s DAX Index fell 2.7% in a week to 9,834.62 points and London’s FTSE 100 Index declined 1.5% to 6,115.76 points.

The US dollar rebounded and strengthened against major currencies. In a week, the US Dollar Index futures rose from 94 points in the previous Friday to 94.6 points last Friday. Gold continued to increase for the second week on uncertainty in Europe. Commodity exchange gold increased 2.5% in a week to US$1,275.90 (RM5,231.19) an ounce. Crude palm oil on Bursa Malaysia declined 3.2% in a week to RM2,580 per tonne, a correction after two weeks of increases.

The FBM KLCI broke above the immediate resistance level at 1,640 points last week, and climbed above its 30-day moving average. I mentioned last week that the FBM KLCI may test the next resistance level (which is the 200-day moving average) at 1,660 points. The FBM KLCI tested this level, but failed to stay above it. This indicates that market confidence is still weak. Furthermore, the FBM KLCI also failed to test the Ichimoku Cloud indicator.

Momentum indicators indicate a weak breakout. The Relative Strength Index indicator, which increased above its mid-level early last week, pulled back to close under it last Friday. Furthermore, the FBM KLCI pulled back towards its middle band after testing the top band for a short period of time.

The market may continue to be bullish if the FBM KLCI can stay above the short-term uptrend line currently at 1,630 points. We may expect the market to break above 1,660 points if the index can stay above 1,640 points. However, expect further weakness in the market if these support levels are broken. Looking at weak technical indicators and the development in markets, I believe the market will pull back to test the support levels of between 1,600 and 1,620 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[email=bennylee.kl@gmail.com][size=15][You must be registered and logged in to see this link.][/email]. 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.[/size]
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