Support level at 1,770 points may be tested

by **Cals** Wed 13 Nov 2013, 14:02

Business & Markets 2013

Written by Benny Lee

Wednesday, 13 November 2013 10:43

THE market continued to slip into a downward correction mode for the third consecutive week as confidence weakens further on lack of catalysts. Despite US and European markets climbing to record highs, markets in Asia were uncertain. Local institutions provided the support while foreign institutions continued selling Malaysian shares. Money continues to stay in the US and Europe. Even gold prices fell as the focus was still on US and European equities.

The benchmark FBM KLCI declined 0.7% in a week to 1,794.80 points yesterday. Trading volume has increased from a daily average of 1.8 billion shares two weeks ago to 2.2 billion shares in the past week. Foreign investors were net sellers once again in the past week. Foreign net selling last week was valued at RM503.9 million and local institutions were the net buyers with RM504.9 million. Local retail was net sellers of RM1 million. Decliners in the KLCI component outpaced gainers three to one. Gainers were led by SapuraKencana Petroleum Bhd (+3.2%), YTL Corp Bhd (+1.2%) and MISC Bhd(+0.8%). Decliners were led by Petronas Chemicals Group Bhd (-4.7%), Public Bank Bhd (-4.0%) and Petronas Gas Bhd (-3.4%).

Markets in Asia were mixed. Thailand’s SET Index remained firm at 1,413.08 points and Jakarta’s Stock Exchange Composite Index declined 1% to 4,380.64 points. Singapore’s Straits Times Index declined only 0.8% in a week to 3,180.25 points. Hong Kong’s Hang Seng Index declined 0.7% to 22,901.41 points and China’s Shanghai Stock Exchange Composite Index declined 1.4% to 2,126.77 points. Japan’s Nikkei 225 index increased 2.6% in a week to 14,588.68 points.

US and European markets continued to rise after the European Central Bank decided to leave the policy rates unchanged. While there was no major news in the last few days, the US stock market was fuelled by last week’s job report. The US Dow Jones Industrial Average rose 0.9% in a week to close at a record high of 15,783.10 points on Monday. In Europe, Germany’s DAX Index increased 0.8% to a record high at 9,107.86 points. However, London’s FTSE100 Index closed firm at 6,728.37 points.

The US dollar continues to rise while gold was abandoned as investors’ risk appetite grew, causing them to shift to equity markets. The US dollar index increased from 80.64 points a week ago to 81.20 points on Monday. This caused the ringgit to weaken against the greenback. The ringgit is currently at 3.21 against a US dollar compared with 3.17 a week ago. Commodity Exchange gold fell 2.5% in a week to US$1,281.10 an ounce. Crude oil found some footing after declining for five consecutive weeks. New York Mercantile Exchange West Texas Intermediate crude increased 0.6% in a week to US$95.02 per barrel. Crude palm oil continued to rise last week, adding 0.8% in a week to RM2,600 per tonne.

The KLCI’s short-term bullish trend may be compromised after it broke below the immediate support level at 1,800 points. The index went below the short-term 30-day moving average early yesterday but rebounded to close above this average, indicating some support. The bullish trend is not over as the index is still above the uptrend support level at 1,770 points. Furthermore, the index is still above the Ichimoku Cloud indicator which support level is at 1,735 points.

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Daily FBM KLCI chart as at Nov 12, 2013 using Next VIEW Advisor Professional.

Momentum continues to weaken, this time turning bearish. The MACD indicator, which fell below its trigger line or moving average a week ago, continues to decline. The RSI and Momentum Oscillator have started to fall below their mid-levels. These indicators, with rising volume, show that selling pressure is getting stronger.

There are still no signs that the focus on US and Europe equity markets is shifting. With bearish pressure from foreign institutions getting stronger in the local market, the market may not be able to continue its uptrend, at least not in the short term. I expect the KLCI to test the uptrend support level at 1,770 points in the next one or two weeks if the index is unable to climb back above the 1,800 points level in the next few days. Even if the index climbs higher, it may be capped at 1,808 points.br>

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.

This article first appeared in The Edge Financial Daily, on November 13, 2013.