Market still in bearish mode

by **Cals** Thu 07 Aug 2014, 00:51

Business & Markets 2014

Written by Benny Lee

Wednesday, 06 August 2014 10:09

AFTER the Hari Raya Aidilfitri holidays, the market lost its bullish momentum on the bearish performance of the US markets. However, bullish performances of Asian markets helped the local market to rebound and minimise losses in a week.

Asian markets were supported by the bullish China market and Japan’s economic and equity market outlook. However, geopolitical problems such as the Ukraine-Russia and Israel-Palestine crises caused markets to be cautious. Furthermore, Argentina’s second default in 12 years also provided negative vibes to the financial markets.

The FBM KLCI ended slightly lower since the last closing before the holidays on July 25 to 1,876.69 points yesterday. The index rebounded from a low of 1,861.60 points. Last week, trading volume increased to an average daily volume of 2.7 billion shares compared with 2.4 billion shares two weeks ago.

The average daily trading value rose RM0.3 billion to RM2.4 billion, indicating that more lower priced stocks were being traded. The total market valuation increased slightly from RM1,786 billion to RM1,788 billion.

Foreign institutions were net sellers as the ringgit weakened. Local institutions continued to be the supporters of the market. Net buying by local institutions from last Wednesday to Monday came to RM155 million. Net selling by local retail investors totalled RM57.5 million and local institutions, RM97.5 million.

For the KLCI, gainers managed to outpace decliners 16 to 11. Top gainers in the index were Petronas Dagangan Bhd (+5.6%), PPB Group Bhd (+2.2%) and AMMB Holdings Bhd (+2.1%) while decliners were led by Petronas Gas Bhd (-5.4%), Felda Global Ventures Holdings Bhd (-4.1%) and Telekom Malaysia Bhd (-1.9%).

Markets in the Asian region were buoyant last week but US and European markets declined. Singapore’s Straits Times Index declined 0.9% in a week to 3,327.67 points after pulling back from its 14-month high of 3,374.06 points. Hong Kong’s Hang Seng Index was firm in a week at 24,648.26 points after pulling back from a four-year high. China’s Shanghai Stock Exchange Composite Index rose 1.7% to 2,119.95 points, near its eight-month high.

On Monday, the US Dow Jones Industrial Average declined 2.4% in a week to 16,569.28 points, wiping out gains made in the past one month. London’s FTSE100 Index fell 1.6% in a week to 6,677.52 points and Germany’s DAX plunged 4.6% in a week to 9,154.14 points, the lowest level in four months.

The US dollar strengthened against major currencies for the fourth consecutive week. The US dollar index rose from 81.12 points to 81.40 points, near the highest level in 11 months. This continued to put pressure on gold and crude oil prices. Commodity Exchange gold declined 1.2% in a week to US$1,288.30 (RM4,109.67) an ounce. Crude oil declined 3.1% in a week to US$98.40 per barrel, the lowest in six months. Crude palm oil declined marginally, shedding only RM7 in a week to RM2,258 per tonne.

The KLCI continued to stay below the short-term 30-day moving average despite the rebound in the past two days, indicating that market sentiment is still bearish. The index also broke below the Ichimoku Cloud indicator, the first time in four months but has rebounded into the cloud. The movement last week formed an immediate support at 1,862 points while the next support level is at 1,840 points, which is where the long-term 200-day moving average currently is.

Momentum indicators like the RSI and Momentum Oscillator rebounded towards the mid level, indicating a weak bearish trend. The index broke below the bottom band of the Bollinger Bands indicator last week and remained below the middle band. This indicated that the momentum was still bearish in the short term. In addition, the Ichimoku Cloud has started to change to a bearish direction. All these are indications that the market is currently at a trend reversal.

The KLCI is still not out of the short-term bearish trend. The market may continue to be bearish this week if the rebound fails to break above the immediate resistance level of 1,880 points. The short-term 30-day moving average is at 1,882 points.

However, low- and mid-cap stocks may continue to be in play but a bearish sentiment could limit gains. Henceforth, we should be in a cautious mode as there is higher potential of the market falling than an upside occuring. We are expecting the KLCI to trade at between 1,860 and 1,880 points this week.

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.

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This article first appeared in The Edge Financial Daily, on August 6, 2014.
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