Bearish momentum building up

by **Cals** Thu 12 Mar 2015, 00:53

Bearish momentum building up

By Benny Lee / Contributor to The Edge Financial Daily | March 11, 2015 : 9:54 AM MYT

THE FBMKLCI failed to break above the resistance level at 1,830 points last week and the market was weighed down by the weak ringgit and falling crude oil prices. I was expecting the market to continue to be bullish last week but have also mentioned that the index needs to break above 1,830 points and that crude oil prices must rebound and the ringgit does not turn weak. The FBMKLCI declined 1.8% in a week to 1,789.73 points and was in line with global market performances.

Market volume was slightly higher from the previous week. Average daily trading volume was 2.2 billion shares in the past week compared with 2.1 billion shares two weeks ago. After some accumulation two weeks ago, foreign institutions turned large sellers in the past week as the ringgit weakened. Net selling from foreign institutions last Monday to Friday was RM593.5 million while net buying from local institutions and local retail was RM544.0 million and RM49.5 million respectively.

For the FBMKLCI, only two out of the 30 counters went up and the increase was marginal. The two counters that went up were [size=14]CIMB Group Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+0.2% from last week) and Axiata Group Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+0.1%). The top three decliners in the index were Sapurakencana Petroleum Bhd ([You must be registered and logged in to see this image.]Financial Dashboard) (-7.7%), Genting Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-7.2%) and Petronas Chemicals Group Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-5.5%).

Markets pulled back for a bullish trend correction last week. The Shanghai Stock Exchange Composite Index rose 0.7% in a week to 3,287.10 points. Hong Kong’s Hang Seng Index fell 3.3% to 23,896.98 points. Japan’s Nikkei 225 declined 0.8% to 18,665.11 points, the highest level in nearly 15 years. Singapore’s Straits Times declined 0.7% to 3,398.26 points.

On Monday, the US Dow Jones Industrial Average declined 1.6% in a week to 17,995.72 points after climbing to a record high a week ago. London’s FTSE100 index declined 0.8% to 6,879.12 points after pulling back from its record high last Thursday. However, Germany’s DAX Index continued to climb to record highs, climbing 1.5% in a week to a record close at 11,582.11 points.

The US dollar index rose to its highest level since September 2004, increasing from 95.34 points a week ago to 98.18 points. The ringgit weakened against the greenback at RM3.71 to a US dollar compared with 3.63 a week ago. The strong US dollar continued to pressure gold prices. COMEX gold fell 3.2% in a week to US$1,166.40 (RM4,304) an ounce. Crude oil remained firm and the Brent crude declined 1.7% to US$58.53 per barrel. Crude palm oil futures on Bursa Malaysia fell 5.9% in a week to RM2,238 per tonne on weak demand.

The FBMKLCI has turned bearish as it fell below its short-term 30-day moving average. Market confidence was already weak as the index struggled to break above the long-term 200-day moving average last week and the decline below the short term average indicates sentiment has turned bearish. However, the index remained above the widening Ichimoku Could indicator and this indicates that there is support. Furthermore, the FBMKLCI is still above the immediate support level at 1,780 points. A breakout below this level would confirm the bearish trend.

Momentum indicators like the RSI, Momentum Oscillator and MACD are indicating that the price has turned bearish. The RSI and Momentum Oscillator fell below their mid-levels and the MACD crossed below its moving average. Furthermore, the Bollinger Bands are expanding and the FBMKLCI is trading below the bottom band for the past two days. This indicates that the bearish momentum is gaining strength.

Technically, the market is expected to remain bearish as the bearish momentum has built up in the past one week. Furthermore, the ringgit is expected to weaken further while crude oil price remains bearish as falling gold prices indicate a possible stronger US dollar. Henceforth, we expect further downward decline and the FBMKLCI is expected to test the immediate support level at 1,780 points. From the indicators, there is a high chance that this level will be broken and the next support level can only be found at 1,680 points.

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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 March 11, 2015.
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