More sideways movement of KLCI expected

by **Cals** Wed 12 Mar 2014, 12:39

Business & Markets 2014

Written by Benny Lee

Wednesday, 12 March 2014 10:58

THE market saw some volatility last week but lacked direction. The stronger ringgit and rising crude palm oil prices provided the catalyst for support in a market that is technically overbought. The FBM KLCI rose marginally higher from last week’s close at 1,828.55 points, 0.1% higher.

The trading range was relatively volatile between 1,817.20 and 1,838.69 points. This shows that the market direction is still uncertain.

Trading volume continued to decline last week as the market, as we had expected last week, was being cautious. The average trading volume was 2.0 billion shares, compared to 2.7 billion shares two weeks ago. Average trading value came to RM2.1 billion shares and this indicated that the trades had shifted to higher priced stocks.

Last week, local retailers were net sellers on Bursa Malaysia at RM14.2 million while local and foreign institutions were net buyers at RM12.8 million and RM1.4 million respectively. In the KLCI, decliners beat gainers four to three. Gainers were led by MISC Bhd (+8.6%), Telekom Malaysia Bhd (+4.4%) and Felda Global Ventures Holdings Bhd (+3.1%) while decliners were led by SapuraKencana Petroleum Bhd (-2.0%), YTL Corp Bhd (-1.9%) and Genting Malaysia Bhd (-1.9%).

Global markets continued to be mixed. Singapore’s Straits Times Index rose 0.8% in a week to 3,129.40 points. Hong Kong’s Hang Seng Index declined 1.7% to 22,269.61 points and China’s Shanghai Stock Exchange Composite Index fell 3.4% to 2,001.16 points.

Japan’s Nikkei 225 Index increased 3.4% in a week to 15,224.11 points. On Monday, the US Dow Jones Industrial Average increased 1.5% in a week to 16,418.68 points. London’s FTSE100 Index declined 0.3% to 6,689.45 points and Germany’s DAX Index declined 1% to 9,265.50 points.

Commodities traded sideways in the past one week as the US dollar strengthened. Commodity Exchange gold declined 0.8% in a week to US$1,339.80 (RM4,395) an ounce. Crude oil declined 3.7% in a week ot US$100.94 per barrel. The US dollar index marginally fell from 80.09 points two weeks ago to 79.89 points after rebounding from a low of 79.67 points. The ringgit gained some strength against the US dollar, improving from 3.29 to 3.28.

Crude palm oil futures rose further on lower production and inventory for the month of February. Crude palm oil price increased 2.4% in a week to RM2,872 per tonne.

Technical indicators continue to stay relatively the same as the previous week. The index trend remained bullish above its short term 30-day moving average but is in the Ichimoku Cloud. The KLCI needs to break above the immediate resistance level at 1,840 points to boost market confidence and continue its uptrend. This immediate resistance level is the 61.8% Fibonacci retracement level from the downtrend since January to early February this year. Immediate support level is at 1,810 points.

Momentum indicators continue to drift sideways, indicating weak momentum. The RSI remained above the mid-level but has stayed flat for almost three weeks. The MACD indicator is still above its nine-day moving average trigger line but the spread between these two lines is getting narrow. The tightening of the Bollinger Bands indicates weak volatility and this also shows that the momentum is weak.

Furthermore, the Ichimoku Cloud is getting thinner which indicates that the support for the uptrend is weakening.

We are not able to see where the KLCI direction is heading if it stays between the immediate support and resistance levels at 1,810 and 1,840 points respectively.

Furthermore, the mixed global market performances do not provide enough confidence.

Trading volume has declined in the past few weeks and this indicates that the market is staying on the sidelines. With these mixed signals, the index is expected to stay sideways this week. However, if it breaks above 1,840 points, then there is potential for the market to continue its bullish trend. A break below 1,810 points will see the index moving further into a downward correction.

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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 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 March 12, 2014.