Market bearish, technical rebound expected this week

by **Cals** Wed 27 May 2015, 19:21

Market bearish, technical rebound expected this week

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By Benny Lee / The Edge Financial Daily | May 27, 2015 : 9:55 AM MYT

The bearish momentum persisted in the past week as we expected and the benchmark FBM KLCI fell to its lowest in four months yesterday. Political issues, a weaker ringgit and the [size=14]1Malaysia Development Bhd saga overshadowed the 11th Malaysia Plan. Foreign institutions continued to reduce their exposure to the local market. The KLCI was weighed down by its component heavyweight CIMB Group Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), Tenaga Nasional Bhd (TNB) ([You must be registered and logged in to see this image.] Financial Dashboard) and Sime Darby Bhd ([You must be registered and logged in to see this image.] Financial Dashboard). The index fell 2.5% in a week to 1,764.07 points, bucking the global market trend.

Trading volume remained firm at 1.9 billion shares on a daily average in the past week as compared with the previous week. However, the average daily trading value increased to RM2 billion from RM1.9 billion a week ago. This indicates higher-priced stocks, which are normally traded by institutions, were being traded more.

From Monday to Friday last week, net selling from foreign institutions was RM544 million and local institutions were net buyers of RM568.7 million. In the KLCI, only two out of the 30 counters were gainers. The two gainers were UMW Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (up 0.6% from last week) and MISC Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (0.5%). The top three decliners were CIMB Group Holdings (6.5%), Hong Leong Financial Group Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (5.6%) and TNB (-4.9%).

Asian markets were bullish in the past week with Japan and China climbing to multiyear highs. China’s Shanghai Stock Exchange Composite Index jumped 11.1% to 4,910.90 points, the highest since mid-January 2008. Japan’s Nikkei 225 increased 2% to 20,437.48 points, the highest in 15 years and only 396 points or 2% from its record high. Hong Kong’s Hang Seng Index rose 1% to 27,693.54 points. Singapore’s Straits Times Index increased only 0.3% to 3,454.04 points.

The Dow Jones Industrial Average in New York pulled back from its record high and declined 0.4% in a week to 18,232.02 points on Monday. However, London’s FTSE 100 increased 1% in a week to 7,041.37 points and Germany’s DAX rose 1.8% to 11,805.11 points.

The US Dollar Index, which benchmarks the greenback against major currencies, continued to rally from the rebound two weeks ago. The US Dollar Index increased from 95.3 last week to 97.1 points yesterday evening. The ringgit weakened against the US dollar from 3.59 to 3.62.

A strong US dollar weighed down gold. After a 3.6% increase two weeks ago, Commodity Exchange gold declined 1.5% in a week to US$1,206.50 (RM4,367.53) an ounce. Crude oil’s bullish momentum continued to weaken and the price rose marginally to US$59.82 per barrel. Crude palm oil futures on Bursa Malaysia rose 1.2% in a week to RM2,184 per tonne on higher demand.

The KLCI broke below the support level at 1,775 points, which indicates a bearish market sentiment. Technically, the KLCI remained strongly bearish below the long-term 200-day moving average and the Ichimoku Cloud indicator. However, the bearish momentum eased yesterday as the decline was weaker and the movement formed a “Doji”-like Japanese Candlesticks chart pattern that indicates uncertainty. It also indicates support when the trend is bearish.

Momentum indicators like the RSI, MACD and Momentum Oscillator continued to decline, indicating strong bearish momentum. Furthermore, the KLCI is trading at the bottom band of the expanding Bollinger Bands indicator. However, the RSI indicator is moving towards its oversold level and therefore the market may stage a technical rebound.

Market sentiment and the KLCI trend remained bearish, and this may continue in the short term unless the index climbs back above the broken support level at 1,775 points. However, the Doji pattern at oversold levels could attract bargain hunters. Therefore, we expect a technical rebound this week but the increase may be capped at 1,775 points. If the index is unable to break above this level, further downside is expected for the index and the next support level can only be found at 1,700 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 May 27, 2015.
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