Market may remain in correction mode

by **Cals** Thu 08 Jan 2015, 03:09

Market may remain in correction mode.

BURSA MALAYSIA started the first week of the year on a bearish note as markets started to decline for a correction after the window dressing before the year 2014 ends. Foreign institutions continued selling as the Malaysian ringgit fell to five-year lows against the US dollar and crude oil fell to five-and-a-half-year lows. The FBM KLCI declined 2.8% in a week to 1,716.58 1,766.83 points.
The trading volume on Bursa Malaysia remained low but firm as compared with the previous week as the market continued to be cautious about the weak ringgit. The average daily trading volume in the past one week was only 1.4 billion shares. The average daily trading value in the past one week, however, increased RM1.5 billion as compared with RM1.3 billion in the previous week and this indicates higher-priced stocks were being traded.
Foreign institutions remained net sellers last week. Net selling from foreign institutions was RM154.4 million. Local retail was also selling with a net of RM57.3 million. Net buying from local institutions was RM211.7 million. In the KLCI, only three counters were up for the week. The three gainers were Felda Global Ventures Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+0.9% from last week), YTL Corporation Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+0.6%) andPPG Group Bhd (+0.4%), while decliners were led by Petronas Chemicals Group Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-8.1%), Genting Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-5.3%) and AMMB Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-4.7%).
Markets globally, except for China, pulled back for a correction as well. China’s Shanghai Stock Exchange Composite rose 5.8% in a week to 3,353.01, its highest level in more than five years. Japan’s Nikkei 225 index declined 3.2% to 16,883.19 points. Hong Kong’s Hang Seng Index marginally declined to 23,485.01 points. Singapore’s Straits Times Index fell 2.5% in a week to 3,281.95 after pulling back from a five-month high a week ago.
On Monday, the US Dow Jones Industrial Average declined 3% in a week to 17.501.65 points. London’s FTSE100 Index fell 3.4% in a week to 6,404.66 and Germany’s DAX Index declined 4.6% to 9,473.16 points. The US dollar index continued to increase to nine-year highs at 91.62 points from 90.49 points a week ago. The Malaysian ringgit weakened from RM3.50 per dollar a week ago to RM3.56, the lowest in five-and-a-half years against the greenback.
Gold prices rebounded as equity markets fell. COMEX gold rose 1.9% in a week to US$1,205.10 (RM4278.10) an ounce. Crude oil continued to decline, falling 7.1% in a week to US$49.95 per barrel, the lowest level in five-and-a-half years. The weak ringgit helped support crude palm oil (CPO) prices despite declining crude oil prices. CPO remained firm at RM2,284 per tonne yesterday as compared with last week.
The KLCI is continuing its bearish trend. The index tested the short-term 30-day moving average at the end of last year but failed to break and stay above it. The KLCI pulled back lower from its 30-day moving average and is continuing its bearish trend. The KLCI is below an expanding Ichimoku Cloud which indicates that the bearish trend is getting stronger.
The momentum indicators were also indicating a strong bearish momentum developing. The RSI indicator continued declining below its mid-level and the MACD indicator is almost crossing below its moving average. Furthermore, the KLCI has fallen below the mid-band of the Bollinger Bands indicator.
We may expect some rebounds as the index approaches the support level at 1,710 points. However, the rebound may be limited as the market sentiment is still bearish. The technical indicators show that the index may decline futher and possibly test the support level at 1,672 points. The support level is the level before the market rebounds for window dressing before the year ends. Henceforth, we expect the market to remain in a correction mode. Immediate resistance level for the KLCI is at 1,760.0 points.

Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [You must be registered and logged in to see this link.]. 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 January 7, 2015.