Time for a technical rebound

by **Cals** Wed 27 Jan 2016, 20:40

Time for a technical rebound

By Benny Lee / The Edge Financial Daily | January 27, 2016 : 10:18 AM MYT

This article first appeared in The Edge Financial Daily, on January 27, 2016.

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The market fell for the third week since the new year, but the decline in the past week was much smaller. Signs of oversold and time for a rebound? Well, let’s see. Crude oil price rebounded and the ringgit gained significant strength despite [size=16]Bank Negara Malaysia reducing the statutory reserve requirement by half a percentage point to 0.5%, which could provide more liquidity to the market. However, the overnight policy rate, which determines key interest rates, is maintained at 3.25%. The move by the central bank is definitely a boost to the equity market.

The FBM KLCI declined only 0.2% to 1,625.21 points last Friday after rebounding from a low of 1,600.92 points last Thursday. The ringgit strengthened against the US dollar, from RM4.42 to a US dollar a week ago to RM4.28.

Trading volume increased last week and it shows a form of support as the index did not decline significantly like previous weeks. Support came from local institutions. The average daily trading volume in the past week was 2.3 billion shares compared with two billion shares two weeks ago. However, the average trading value fell from RM2.1 billion to RM2 billion, and this indicates more lower-capped counters were being traded.

Foreign institutions extended their selling. Net selling (from Monday to Friday last week) from foreign institutions was RM834 million, while net buying from local institutions and local retail were RM821 million and RM13 million respectively.

From last week, decliners edged gainers 17 to 12 in the FBM KLCI. The top gainers for the week were Sime Darby Bhd([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 0.80) (+3.2% in a week), CIMB Group Holdings Bhd ( Valuation: 1.65, Fundamental: 0.55) (+2.7%) and PPB Group Bhd ( Valuation: 1.60, Fundamental: 2.30) (+2.4%). Top decliners were UMW Holdings Bhd (Valuation: 1.40, Fundamental: 1.00) (-7.0%), IOI Properties Group Bhd ( Valuation: 2.20, Fundamental: 2.10) (-6.6%) andSapuraKencana Petroleum Bhd ( Valuation: 1.40, Fundamental: 0.65) (-3.4%).

Strong rebounds last Friday recovered most losses last week. China’s Shanghai Stock Exchange Composite Index rose half a per cent in a week to 2,916.6 points last Friday. Hong Kong’s Hang Seng Index fell 2.2% in a week to 19,080.51 points. Singapore’s Straits Times declined 2% in a week to 2,577.09. Japan’s Nikkei 225 Index declined 1.1% in a week to 16,958.53 points after rebounding from a 15-month low last Thursday.

The US Dow Jones Industrial Average increased 0.7% in a week to 16,093.51 points last Friday. Germany’s DAX Index increased 2.3% in a week to 9,764.89 points and London’s FTSE 100 Index rose 2% in a week to 5,911.24 points.

The US Dollar Index gained strength and increased from 99.0 points a week ago to 99.67 points last Friday. TheCommodity Exchange gold price rebounded and increased 0.9% in a week to US$1,098.20 an ounce. West Texas Intermediate crude oil increased 8.6% in a week to US$32.25 per barrel. Crude palm oil on Bursa Malaysia rose 2% in a week to RM2,459 per tonne last Friday on anticipation of lower output in coming months.

The FBM KLCI is still bearish below the short-term 30-day and long-term 200-day moving averages. Furthermore, the index is also below the Ichimoku Cloud indicator. This indicates that the market is still not out of the storm. However, after three weeks of declines, the FBM KLCI is becoming oversold and was supported at 1,600 points. This is also a downtrend line support level (See S1 on the chart).

Hookups in momentum indicators because of last Friday’s rebound indicates weaker bearish momentum. Nevertheless, the market is still bearish as these indicators, such as the Relative Strength Index and momentum oscillator are below their mid-levels. Furthermore, the moving average convergence divergence indicator is below its moving average and the FBM KLCI is below the mid-band of the Bollinger Bands indicator.

Although the market is still bearish technically, I am expecting a rebound in equity markets as the indicators also indicate that the market, benchmarked by the FBM KLCI, is oversold and at support level. Furthermore, the recent developments (rising crude oil prices, stronger ringgit and the central bank’s move) may provide the support needed for the rebound.

The index is expected to test the short-term 30-day moving average at 1,640 to 1,645 points this week. However, the market is expected to turn its bearish trend around only if the FBM KLCI can climb above the Ichimoku Cloud resistance level at 1,675.0 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[email=bennylee.kl@gmail.com][size=15][You must be registered and logged in to see this link.][/email]. 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.[/size]
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