Market expected to stay bullish

by **Cals** Thu 10 Jul 2014, 02:27

Business & Markets 2014

Written by Benny Lee

Wednesday, 09 July 2014 10:04

THE equity market recorded a new high yesterday as it rebounded from last week’s decline. In my previous article, I mentioned that the FBM KLCI is likely to rebound and climb to historical highs with a 1,910-point target in the short term.

The KLCI rose 0.7% in a week to close at a record 1,892.65 points yesterday on a slightly elevated trading volume. This indicates that there is strong support for the market, whose valuation had increased by RM10 billion from last week.

The average daily trading volume increased from 1.7 billion shares two weeks ago to 1.9 billion shares in the past week. The average daily trading value increased marginally from RM2.1 billion to RM2.2 billion, indicating the return of more trading on lower priced stocks. Nevertheless, the market is still supported by institutions.

Total market valuation increased from RM9 billion last week to RM1,786 billion yesterday.

For the third consecutive week, local retail market players were the only net sellers on Bursa Malaysia. From Monday to Friday last week, net buying by local and foreign institutions stood at RM199.1 million and RM50.3 million respectively. Net selling by local retail came to RM249.4 million.

In the KLCI, gainers outpaced decliners 11 to 4 in the past one week. The gainers were led by UMW Holdings Bhd (3.3%), IHH Healthcare Bhd (3.2%) and MISC Bhd (2.8%) while decliners were led by Petronas Dagangan Bhd (-2.4%), Genting Bhd (-1.9%) and Astro Malaysia Holdings Bhd (-1.8%).

After a mixed market performance two weeks ago, markets were mostly bullish last week led by the US market’s strong performance. Singapore’s Straits Times Index rose 1.2% in a week to 3,283.34 points. Hong Kong’s Hang Seng Index increased 1.5% to 23,541.38 points. China’s Shanghai Stock Exchange Composite Index rose only 0.7% in a week to 2,064.02 points. However, Japan’s Nikkei 225 Index marginally declined 0.1% in a week to 15,314.41 points.

On Monday, the US Dow Jones Industrial Average increased 1.2% in a week to 17,024.21 points after pulling back from a record close at 17,068.26 points last Thursday. London’s FTSE100 Index increased 0.8% to 6,823.51 points while Germany’s DAX Index rose 0.7% to 9,906.07 points.

The ringgit continued to strengthen in the past one week despite the US dollar getting stronger against major currencies. The ringgit is currently at 3.18 to the US dollar, compared with 3.21 a week ago. The US dollar index increased from 79.81 points a week ago to 80.27 points. Gold was trading sideways last week and managed to climb 0.5% to US$1,321.00 (RM4,201) an ounce. New York Mercantile Exchange WTI Crude Oil declined 2% in a week to US$103.40 per barrel.

Crude palm oil on Bursa Malaysia Derivatives Exchange declined 1.4% in a week to RM2,383 per tonne on the stronger ringgit and falling soybean oil prices.

The ability of the KLCI to climb to record highs indicates that the market is willing to take higher risks. The absence of selling pressure has given buyers more confidence in the market. This indicates a healthy uptrend, technically.

The index was able to rebound from the short-term 30-day moving average and the short-term uptrend line support level after it tested these levels a week ago, indicating strong support. The index is comfortably bullish above the rising Ichimoku Cloud indicator.

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Momentum indicators such as the RSI and Momentum Oscillator are beginning to indicate a stronger bullish momentum after rebounding from their mid-levels last week. The MACD climbed above its nine-day moving average trigger line after having been below the line last week, indicating that the bullish momentum is strong.

Furthermore, the KLCI is trading at the top band of the Bollinger Bands indicator which shows that the market is eager to climb higher.

The technical indicators show that the market is expected to stay bullish this week. There are no signs of a bearish reversal and the stronger ringgit is providing the catalyst for foreign institutions to continue accumulating. The main support level for the bullish trend is at 1,880 points and as long as the index stays above this level, the trend remains technically bullish.

This week, I expect the KLCI to trade at between 1,885 and 1,900 points. However, the bullish performance may be affected if Bank Negara Malaysia decides to raise the key interest rate which has become the talk of the town today.

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 July 9, 2014.[/size]