Correction may be over soon

Correction may be over soon
Business & Markets 2013
Written by Benny Lee
Wednesday, 05 June 2013 10:05


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INVESTOR cautiousness caused the market to trade sideways in the past week, and it has been trading like this in the past three weeks. After climbing to a record high at 1,788.43 points on May 14, the FBM KLCI struggled to create new highs. Rallies were greeted by pullbacks as the market took the opportunity to lock in profit from a good rally after the general election. The market was being cautious because of the performances of the global markets, especially Asia, and a string of weak quarterly corporate earnings results. However, the local market was supported quite well despite steep falls in Asian markets in the past two weeks, especially Japan.

The KLCI remained almost unchanged in a week at 1,776.74 points, after trading in a range between 1,766.33 and 1,786.57 points. Trading volume was firm compared with the previous week with a daily average of 2.3 billion shares. Trading volume was mostly focused on second liners.

The US market was also being cautious and started to pull back slightly. The Dow Jones Industrial Average declined 0.3% to 15,254.03 points on Monday after rebounding from the lowest level in a month because of the steep fall last Friday.

Markets pulled back in Europe as well, with steeper declines in the UK market. The FTSE100 index declined 1.9% to 6,525.12 points on Monday while Germany’s DAX fell 1% to 8,285.80 points. Markets are starting to feel some resistance after climbing to record highs.

Asian markets continued to take a bashing as investor confidence is starting to wear out, but I guess it is just a correction in an overbought market. The Japanese market, which has skyrocketed since early this year, is basically finding back its footing on the ground. Japan’s Nikkei 225 index declined 5.4% in a week to 13,533.76 points yesterday. The index has so far declined 13.4% in two weeks. Hong Kong’s Hang Sang Index declined 2.8% to 22,285.52 points. The Hang Seng has declined for three consecutive weeks. China’s Shanghai Stock Exchange Composite Index fell 2.1% to 2,272.87 points and Singapore’d Straits Times Index declined 3.3% to 3,291.35 points.

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The US dollar has started to weaken in the past week. The US dollar index fell from 84.17 points a week ago to 82.69 points after struggling to climb higher since the middle of May. The weakening US dollar boosted commodities prices. Commodity Exchange (Comex) gold increased 1.2% in a week to US$1,410 (RM4.357) an ounce. However, crude oil remained firm at US$93.38 a barrel. Despite a weaker US dollar, the ringgit was weaker against the greenback in the past week. The ringgit was at 3.04 to a US dollar a week ago and is currently at 3.09. Crude palm oil for August delivery declined 0.5% in a week to RM2,375 per tonne on weaker export estimates.

Technically, the KLCI is still in a sideways correction of a sideways trend. The short- term 30-day moving average has climbed near the index level at 1,755 points and in a week, it is probably going to be at the same level with the index. The Ichimoku Cloud will also be at the same level. This shows the sideways correction may end soon and the index is either going to climb higher or start to move into a bigger downward correction.

Momentum indicators are still indicating a bullish market albeit a weak one. However, the weak momentum is expected as the index moves into a correction. The sideways correction that the market is going through despite steep pullbacks in regional markets shows that the local market is strongly supported. Furthermore, the KLCI remained above the 1,765-point immediate support level. Therefore, the chance for the market to climb higher is better than for it to decline into a bigger correction.

The market is expected to climb higher after this sideways correction, which is expected to be over soon. Market confidence will be stronger if the index breaks the record high at 1,790 points and heads towards the anticipated target level of 1,850 points. It may be a good time to find uptrend stocks that are on a correction as the trend is expected to continue soon. However, stay cautious and be content with small gains.


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 5, 2013.