Market continues to be bullish but cautious

by **Cals** Wed 23 Oct 2013, 11:25

Business & Markets 2013

Written by Benny Lee

Wednesday, 23 October 2013 10:33

THE FBM KLCI finally closed above the 1,800-point psychological level on Monday and managed to stay above it yesterday. However, the market was a little quieter ahead of the tabling of Budget 2014 on Friday. Markets in the region are still buoyant as investors are not expecting the US to taper off its stimulus programme soon. European markets are more optimistic with stocks soaring to record highs. Therefore, the probability of the KLCI recording new highs is getting better, especially when the chart shows continuous bullish momentum.

The benchmark KLCI increased 1% in a week to 1,803.58 points after trading between 1,786.10 points and 1,808.35 points. Trading volume was firm compared with the previous week with 1.8 billion shares changing hands daily on average. Local institutions were net buyers with RM186.6 million while local retail and foreign investors were net sellers with RM75 million and RM111.6 million respectively last week. Gainers outpaced decliners six to one, led by SapuraKencana Petroleum Bhd (+6.8%), YTL Corp Bhd (+5.9%) and RHB Capital Bhd (+4.4%), while decliners were led by Genting (-2.3%), IHH Healthcare Bhd (-1.4%) and Malayan Banking Bhd (-0.5%).

Markets in Asia remained buoyant despite some correction as markets in the US and Europe continued to rally. Thailland’s SET Index declined 1.1% in a week to 1,457.36 points and Indonesia’s Jakarta Stock Exchange Composite Index declined 0.2% to 4,512.74 points. Singapore’s Straits Times Index added 1.4% in a week to 3,210.21 points, Hong Kong’s Hang Seng Index remained firm at 23,315.99 points and China’s Shanghai Stock Exchange Composite Index declined 1% to 2,210.65 points. Japan’s Nikkei 225 index rose 1.9% in a week to 14,713.25 points.

Markets in the US remained bullish over the past week as investors were expecting better jobs data. The US Dow Jones Industrial Average increased 0.6% in a week to 15,392.20 points on Monday. Markets in Europe were more optimistic as the US dollar weakened against the euro. Germany’s DAX Index climbed 1.6% in a week to a record close at 8,867.22 points and London’s FTSE100 increased 2.2% to 6,654.20 points, the highest level in 2½ months.

The US dollar weakened against major currencies. The US dollar index fell sharply from 80.31 points a week ago to 79.75 points. This marginally strengthened the ringgit from 3.18 against the dollar last week to 3.17. Gold rebounded against the weaker US dollar. Comex gold increased 3.4% in a week to US$1,315.7 (RM4,181) an ounce. Crude oil declined below the US$100 mark, a level not seen since July 2. WTI crude oil fell 2.5% in a week to US$99.48 per barrel. Crude palm oil continued to increase for the fifth consecutive week, rising another 3.9% in a week to RM2,456 per tonne.

The close above the 1,800-point level indicates that the market is geared to be trending upwards. Supported by increasing moving averages and expanding Ichimoku Cloud indicators, the current short-term uptrend is steadily bullish. Immediate resistance level is at 1,811 points while immediate support level is at 1,780 points.

Momentum indicators have started to increase after lying flat two weeks ago. The RSI indicator climbed to its highest level since July and the MACD indicator has crossed above its moving average. All these indicate a stronger bullish momentum. Furthermore, the index continues to trade at the top band of the expanding Bollinger Bands indicator. Henceforth, we expect the KLCI to be trending upwards in the short term.

Despite the strong bullish momentum, the market may be cautious and may be overbought in the short term at above 1,800 points. If the index can stay above 1,800 points until Budget 2014 is presented, we are going to see the KLCI climbing to historical highs next week. Nevertheless, the KLCI remains bullish as long as it stays above the immediate uptrend support level at 1,770 points. Oil and gas stocks, which have rallied strongly since August, may start to pull back because of declining crude oil prices and the ringgit is expected to strengthen against the greenback.

[You must be registered and logged in to see this image.]

Daily FBM KLCI chart as at Oct 22, 2013 using Next VIEW Advisor Professional.

Benny Lee is chief market strategist at 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 [email= This e-mail address is being protected from spambots. You need JavaScript enabled to view it ]This e-mail address is being protected from spambots. You need JavaScript enabled to view it [/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.

This article first appeared in The Edge Financial Daily, on October 23, 2013.