Market to stay cautious

by **Cals** Thu 25 Feb 2016, 01:37

Market to stay cautious

By Benny Lee / The Edge Financial Daily | February 24, 2016 : 10:42 AM MYT

This article first appeared in The Edge Financial Daily, on February 24, 2016.

[size=12][You must be registered and logged in to see this image.]Daily FBM KLCI chart as at Feb 23, 2016.

We mentioned last week that the market was staging a rebound and it did, albeit a weak one. The rebound in crude oil prices and better global market performances helped lift market confidence. However, the market continued to be cautious. The FBM KLCI increased 0.7% in a week to 1,677.28 points yesterday. The ringgit was slightly weaker against the US dollar from RM4.19 to a US dollar a week ago to RM4.20.

Trading volume increased slightly in the past one week, compared with the previous week. The average daily trading volume in the past one week was 1.7 billion shares, compared with 1.6 billion shares the week before. The average trading value, however, increased from RM1.7 billion to RM1.9 billion.

The market was supported by foreign institutions. Net buying from foreign institutions (from Monday to Friday last week) was RM283 million, while net selling from local institutions and retailers were RM227 million and RM56 million respectively.

For the FBM KLCI, gainers outpaced decliners five to one. The top gainers of the week were IOI Properties Group Bhd (+4.9% in a week), Maxis Bhd (+3.3%) and Axiata Group Bhd (+3.3%). The top decliners were Astro Malaysia Holdings Bhd (-5.2%), MISC Bhd (-2.4%) and CIMB Group Holdings Bhd (-2.4%).

Asian markets were generally bullish in the past few days. China’s Shanghai Stock Exchange Composite Index increased 2.3% in a week to 2,903.95 points. Hong Kong’s Hang Seng Index rose 1.5% to 19,414.78 points, while Singapore’s Straits Times Index increased 1.1% to 2,673.76 points. Japan’s Nikkei 225 was marginally lower from last week at 16,052.05 points.

The US and European markets were more bullish than the Asian markets. The US Dow Jones Industrial Average rose 4% in a week to 16,620.66 points on Monday, the highest level since Jan 6. Germany’s DAX Index also increased 4% in a week to 9,573.59 points, while London’s FTSE 100 Index rose 3.7% to 6,037.73 points on Monday.

The US dollar was stronger against major currencies. The US dollar index increased from 96.7 points a week ago to 97.4 points on Monday. Bullish gold prices were stunted by the stronger US dollar and equity market. Comex gold was marginally lower at US$1,208.90 (RM5,077.38) an ounce, compared with last week. WTI crude increased 5.8% in a week to US$31.48 per barrel. Crude palm oil on Bursa Malaysia pulled back and declined 3.4% in a week to RM2,551 per tonne yesterday.

The FBM KLCI stayed above the short-term 30-day moving average after breaking above it two weeks ago, and this indicated that the trend is still bullish in the short term. The index is also above the Ichimoku Cloud indicator, but on a thin cloud. This indicates that the bullish trend is still in an early stage. The FBM KLCI seemed to be struggling to climb above the long-term 200-day moving average. This average, together with the downtrend line (Line R1 on the chart) is currently the technical resistance level, and ranges between 1,680 and 1,690 points.

Momentum indicators indicate that the bullish trend is still well supported. The relative strength index indicator is increasing steadily above its mid-level, while the moving average convergence divergence indicator remains above its moving average. Furthermore, the FBM KLCI is still trading near the top band of the Bollinger Bands indicator. However, the bands stopped expanding and this indicates a slightly weaker momentum.

The market is in a cautious mode after a rally post Chinese New year. The FBM KLCI is at the 200-day moving average, which has acted as resistance for the index since October 2014. The market may continue to stay in a cautious mode if the index can’t break above resistance levels between 1,680 and 1,690 points, and we may see a pullback of the index. The immediate support level is at 1,665 points and if this level is broken, we expect the index to fall to the next support level at 1,630 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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