Market in a correction

by **Cals** Wed 03 Sep 2014, 22:45

Business & Markets 2014

Written by Benny Lee

Wednesday, 03 September 2014 09:25

THE market was volatile but directionless last week. The trading volume has declined compared with last week but was still above the three billion mark. The market has remained cautious as another possible interest rate hike is being anticipated this year after Malaysia achieved better-than-expected economic growth in the second quarter.

The benchmark FBM KLCI increased 0.3% in a week to 1,867.69 points yesterday after trading in a range of between 1,860.67 and 1,879.53 points.

The average daily volume fell to 3.2 billion shares last week compared with 4.6 billion shares two weeks ago. The average trading value was only RM2.5 billion, indicating that lower- and mid-cap stocks continued to be in focus last week. Total market valuation declined RM2 billion to RM1,778 billion from the previous week. The market was supported by institutions as retail investors continued to lock in profits after low-capped stocks performed strongly in the past few weeks.

Net buying by local institutions and foreign institutions from Monday to Friday last week came to RM74.9 million and RM36.4 million respectively.

Net selling by local retail investors totalled RM111.3 million. Despite the increase in the KLCI, decliners edged gainers six to five. Gainers were led by Astro Malaysia Holdings Bhd (+7.0%), YTL Corp Bhd (+5.8%) and CIMB Group Holdings Bhd (+2.5%) while decliners were Ambank AMMB Holdings Bhd (-4.6%), Petronas Dagangan Bhd (-3.4%) and Genting Malaysia Bhd (-1.6%).

World markets were mixed in the past one week but China was bullish as it climbed to its 15-month high. Singapore’s Straits Times Index increased only 0.1% in a week to 3,328.30 points. Hong Kong’s Hang Seng Index declined 1.3% in a week to 24,749.02 points. China’s Shanghai Stock Exchange Composite Index rose 2.7% to 2,266.05 points, the highest level in 15 months. Japan’s Nikkei 225 increased 0.9% to 15,668.60 points, which was the highest level in seven months.

The US Dow Jones Industrial Average increased only 0.1% in a week to 17,098.45 points last Friday (the market was closed on Monday). On Monday, London’s FTSE100 Index increased 0.7% in a week to 6,825.31 points but Germany’s DAX declined 0.3% to 9,479.03 points.

The US dollar continued to strengthen against major currencies. The US dollar index rose from 81.59 points to 82.77 points, the highest level in 13 months. Commodity Exchange gold rose 0.9% in a week to US$1,288 (RM4,082.96) an ounce.

Crude oil rebounded 2.7% in a week to US$95.86 per barrel. Crude palm oil continued to decline as demand continued to weaken in the month of August. Crude palm oil futures on Bursa Malaysia Derivatives declined 3.1% in a week to RM1,952 per tonne after rebounding from a low of RM1,914 yesterday. The ringgit weakened against the US dollar from 3.16 a week ago to 3.18.

The KLCI has been whipsawing against the declining short-term 30-day moving average in the past two weeks. The directionless movement indicated uncertainty and the mixed performances of global markets did not help set the sentiment for the local market. The index faced resistance at 1,880 points and support at 1,860 points in the past two weeks. It is also slightly below the Ichimoku Cloud indicator. Therefore, the trend is technically bearish in the short term but still bullish in the long term as the index stays above the 200-day moving average.

Momentum indicators like the RSI and Momentum Oscillator provide no clue as to which direction the index is heading. The RSI and Momentum Oscillator’s middle levels have been whipsawing and the index is trading at around the middle band of the Bollinger Bands indicator. The MACD indicator, however, has continued to increase, indicating that there is a build-up in the bullish momentum despite the index trading sideways.

The market remains cautious and retail investors are continuing to cash out as a precaution. Many low-capped stocks which broke their 52-week highs a few weeks ago have started to pull back. The market, in general, is still supported by institutions. The buoyant performance of regional markets showed that investors still have confidence, especially in the bullish China and Japan markets.

We expect the market to continue with its bullish trend once the resistance level at 1,880 points is broken. Till then, expect the KLCI to trade sideways at between 1,860 and 1,880 points. Correction among low-capped stocks may provide some trading opportunities again if the index can be supported at above 1,860 points as this will provide bullish sentiment in the market. A break below 1,860 points could cause further selling pressure.

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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 September 3, 2014.
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