Highlight Sign of weakness in KLCI but it is still bullish

by **Cals** Thu 10 Apr 2014, 01:17

Highlight Sign of weakness in KLCI but it is still bullish

Business & Markets 2014

Written by Benny Lee

Wednesday, 09 April 2014 10:06

THE US market climbed to a historical high last week and this boosted confidence in the regional and local markets. When the US market pulled back in the past two days, shares in Bursa Malaysia remained buoyant. This shows that the market is supported well, and the support continues to come from foreign institutions as they were net buyers in the past one week.
The FBM KLCI rose 0.3% in a week to 1,852.31 points after pulling back from a high of 1,869.09 points last Friday. The low of the week was 1,846.82 points. The average daily trading volume in the past one week was 2.1 billion shares, compared with 2.0 billion shares two weeks ago. Trading value was RM2.6 billion, indicating that higher priced stocks were favourable. Penny stocks were not favourable as retail investors were selling.
For the whole of last week, net selling from local retail was at RM73.6 million and local institutions at RM30.5 million. Foreign institutions were net buyers at RM107.7.
In the KLCI, decliners edged gainers 3 to 2 despite the rise in the index due to two KLCI heavyweights, Public Bank Bhd and CIMB Group Holdings Bhd. Gainers were led by CIMB (+3.9%), Public Bank (+3.8%) and Astro Malaysia Holdings Bhd (+2.8%) while decliners were led by Felda Global Ventures Holdings Bhd (-3.2%), Hong Leong Financial Group Bhd (-2.9%) and Genting Bhd (-2.4%).
The Asian markets remained slightly bullish despite the steep pullback in the US market in the past two days as China’s rally helped markets to rebound yesterday. Singapore’s Straits Times Index increased 0.2% in a week to 3,204.09 points. The Hang Seng Index increased 0.7% to 22,596.97 points and China’s Shanghai Stock Exchange Composite Index jumped 2.5% in a week to 2,098.28 points.
However, Japan’s Nikkei 225 Index fell 1.2% to 14,606.88 points. On Monday, the US Dow Jones Industrial Average fell 1.3% in a week to 16,245.87 points after pulling back from a historical intraday high at 16,604.15 points last Friday.
London’s FTSE100 Index declined 0.4% to 6,622.84 points and Germany’s DAX Index shed 0.5% to 9,510.85 points.
The US dollar strengthened slightly against a basket of major currencies and gold rebounded after two weeks of declines. Commodity Exchange gold rose 1.2% in a week to US$1,296.60 (RM4,214) an ounce. New York Mercantile Exchange WTI crude oil declined marginally, falling 0.8% in a week to US$100.73 per barrel.
The US dollar index strengthened from 80.25 points to 80.35 points. The ringgit gained some strength against the US dollar and is currently at 3.23, compared with 3.26 a week ago, to a US dollar.
Crude palm oil was pressured on the stronger US dollar and declined 1.3% in a week to RM2,576 per tonne.
The KLCI continued to trend higher but was weaker after breaking out from the 1,840-point resistance level two weeks ago. The index continued to move higher, away from the short term 30-day moving average and the Ichimoku Cloud indicator. The bullish uptrend should be able to sustain as long as it stays above the current immediate support level of 1,840 points. The next resistance level can only be found at 1,880 points.

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

Momentum indicators started to show some weakness after the strong bullish momentum earlier last week. Momentum indicators like the RSI, MACD and Momentum Oscillator continue to climb higher without being overbought but these indicators started to pull back after yesterday’s decline.
The KLCI also started to slightly pull back from the top band yesterday, indicating a possible reversal. These indicators show signs of weakness in the bullish momentum.
However, the KLCI should be able to continue trending higher and test the historical high at 1,880 points if it is able to stay above 1,840 points.
The strengthening of the ringgit may attract foreign investors. A breakout below 1,840 points will see weaker market confidence and further decline for the KLCI. Declining crude palm oil prices may put pressure on plantation stocks while the stronger ringgit may be a bane for export oriented companies.
Property and construction companies should be the focus in the short term as the property index continues to outperform the KLCI.

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 April 9, 2014.