KLCI’s bullish momentum strong but overbought

In The Edge Financial Daily Today 2013
Written by Benny Lee
Wednesday, 04 December 2013 10:59
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THE FBM KLCI climbed to a historical high yesterday led by index component
stock heavyweight Tenaga Nasional Bhd (TNB), which rose 12% after it
announced the tariff rate hike.
However, trading volume was low as the market was more cautious. The
increase was also supported by positive regional market performances.
However, the US and European markets started December on a bearish note
after rising to historical highs following disappointing Thanksgiving retail sales
in the US.
The benchmark index rose 1.5% in a week to 1,824.29 points after climbing to
a historical high of 1,840.12 points. Trading volume was significantly lower at
only 1.4 billion shares traded on average daily in the past one week compared
with 1.9 billion shares two weeks ago. Foreign institutions continue to be net
sellers in the market with RM411 million. Retailers were also net sellers with
RM85.5 million while local institutions remained the only net buyers. Gainers in
the KLCI led decliners nine to four in the past one week and were led by TNB
(+8.8%), SapuraKencana Petroleum Bhd (+5.3%) and Hong Leong Financial
Group Bhd (+4.6) while decliners were led by RHB Capital Bhd (-2.3%),
Petronas Dagangan Bhd (-1.2%) and Maxis Bhd (-1.1).
Markets in the region rebounded last week after a downward correction a week
ago. Thailand’s SET Index rose 1.7% in a week to 1,381.62 points despite
political protests on the streets of their capital city. Jakarta’s Stock Exchange
Composite Index increased 1.3% to 4,288.76 points. Singapore’s Straits Times
Index increased only 0.5% to 3,187.67 points. Hong Kong’s Hang Seng Index
climbed to its highest level in 18 months last Monday and closed 1% higher in a
week to 23,910.47 points yesterday.
China’s Shanghai Stock Exchange Composite Index rose 1.8% in a week to 2,223.74 points and Japan’s Nikkei 225 index increased 1.5%
in a week to 15,749.66 points, the highest close in nearly six years.
Markets in the US and Europe pulled back on the first trading day of December, erasing gains made in the past one week. The US Dow
Jones Industrial Average declined 0.4% in a week to 16,008.77 points. The market was cautious as investors are waiting for the jobs
report due on Friday. The UK’s FTSE fell 1.5% in a week to 6,595.33 points. However, Germany’s DAX Index increased 1.1% to 9,401.96
points.
Commodities continued to feel the pressure last week on rising bond yields. The yield on the 10-year US treasury note climbed to 2.8%,
from 2.75% on Monday. The yield was as low as 1.63% in early May. Gold declined 2.5% in a week to US$1,219.40 (RM3,926.50) an
ounce. Crude oil shed 0.2% in a week to US$93.95 per barrel. The US dollar index was firm in a week at 80.94 points. The ringgit
strengthened from RM3.21 to a US dollar a week ago to RM3.15. Crude palm oil was firm in a week at RM2,619 per tonne.
The market was already bullish last week when a higher support level was formed and the index rose above the short-term 30-day moving
average significantly after a few weeks of directionless trend. It also rebounded strongly from the Ichimoku Cloud indicator. The KLCI’s
bullish momentum increased significantly from yesterday’s rally. It broke and stayed above the 1,820-point resistance level after climbing to a record high.
Momentum indicators on the KLCI are showing stronger momentum. The RSI indicator rose to a month’s high and the MACD indicator
crossed above its moving average or trigger line. The Bollinger Bands are expanding as the index climbed above the top band of this
indicator for the past two days. This strong momentum could further push the index higher. However, lower trading volume indicates
market cautiousness and despite the increase yesterday, the chart shows a bearish reversal inverted hammer pattern which indicates
resistance and possible reversal downwards. Furthermore, the price is overbought, according to the Stochastic Oscillator indicator.
Now that the KLCI has broken above the 1,820-point resistance level, the market could potentially climb to higher levels and the next
resistance level is the 1,840-point in the short term. The chances of the index climbing to this level are high if it can stay above 1,820
points. The strong regional market performances could be a sentiment booster for the local market. Although we may see some pullback
after yesterday’s jump, the KLCI should be trending higher this week to the above-mentioned resistance level.
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 [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.