FBM KLCI at uptrend support level

by **Cals** Wed 22 Jan 2014, 19:13

Business & Markets 2014

Written by Benny Lee

Wednesday, 22 January 2014 10:09

TWO WEEKS AGO, I wrote in this column that the FBM KLCI is due for a short-term correction as market players started to adjust their portfolio this month after the market hit a record high at the end of last year. From the record high, the index declined 65 points or 3.5% to 1,807.6 points on Monday. Yesterday, the index rebounded and the question is now whether there will be a follow-through on the rebound. Basically, market sentiment was supported by increases in the US and European markets. The regional market, however, remained lacklustre.

The KLCI declined 1.1% in a week to 1,815.34 points yesterday after rebounding from an intra-day low of 1,801.31 points on Monday. Trading volume was firm at an average daily volume of two billion shares compared with the same period two weeks ago. Decliners trounced gainers 11 to 1 in the past week and were led by Public Bank Bhd (-3.4%), Felda Global Ventures Holdings Bhd (-2.9%) and CIMB Group Holdings Bhd (-2.6). Gainers were led by AMMB Holdings Bhd (+0.7%) and Genting Malaysia Bhd (+0.5%).

Global markets started to pull back on the first few trading days after the new year. Singapore’s Straits Times Index increased only 0.3% in a week to 3,134.50 points. Hong Kong’s Hang Seng Index increased 1.1% to 23,033.12 points. China’s Shanghai Stock Exchange Composite Index declined 0.9% to 2,008.31 points. The US Dow Jones Industrial Average increased 1.4% in a week to 16,485.56 points on Monday. In Europe, the UK’s FTSE 100 index increased 1.2% in a week to 6,836.73 points, just a few points below its 13-year high while Germany’s DAX Index declined 1.3% to 9,715.90 points after pulling back from a historical high of 9,742.96 points last Friday.

The US dollar continued to strengthen against major currencies last week. The US dollar index increased from 80.61 points to 81.28 points last Monday. This caused the ringgit to weaken against the greenback. The ringgit weakened from RM3.26 against a US dollar a week ago to RM3.32. Gold prices, which were trending upwards since late December last year, started to feel some pressure this week as the greenback strengthens. Commodity Exchange gold stayed firm in a week at US$1,254.10 (RM4,163.61) an ounce. New York Mercantile Exchange West Texas Intermediate crude oil rebounded 2.7% to US$94.03 per barrel after declining for two weeks. Crude palm oil rose 3.8% in a week to RM2,588 per tonne on a weaker ringgit.

Technically, the KLCI is in a correction of an uptrend. The index rebounded exactly on the uptrend line on Monday, indicating that there is still support for the uptrend. However, the index is below the short-term 30-day moving average and is currently in the Ichimoku Cloud. These indicators show there is a possibility of further downward correction, unless the KLCI does not test the low on Monday again, which is the uptrend support level. The KLCI should remain bullish as long as it stays above the uptrend support line.

Momentum indicators have started to turn bearish. The RSI indicator continued to decline below the mid-level and the MACD indicator fell below its mid-level. Furthermore, The Bollinger Bands are expanding with the KLCI trading near the bottom band. These indicators show that the downtrend momentum may continue if the index does not rebound from current levels and break above the immediate resistance level. The immediate resistance level to break to bring back positive market sentiment is at 1,835 points.

Technically, the market sentiment may continue to weaken because of the bearish momentum. Furthermore, the weakening ringgit is a turn-off for the local market. However, the KLCI is currently oversold in the short term and is at the support level of the uptrend and therefore a rebound is expected. Furthermore, rebounds in the regional market may boost market sentiment. The rebound may only be confirmed if the index is able to break above the immediate resistance level at 1,835 points. Henceforth, I expect to see the KLCI trying to test this level this week and failure to do so would cause the index to remain bearish.

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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 [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 January 22, 2014.