Market trend turning bearish

by **Cals** Wed 04 May 2016, 21:36

Market trend turning bearish

By Benny Lee / The Edge Financial Daily | May 4, 2016 : 10:50 AM MYT

This article first appeared in The Edge Financial Daily, on May 4, 2016.

Last week, I mentioned that there was a technical bearish divergence on the FBM KLCI and expected the trend to turn bearish if the support level at 1,700 points was broken. Support for the market faded last week as the benchmark index broke below the support level of 1,700 points to its lowest in two months. Bearish global markets weighed down the market despite the ringgit being firm and crude oil continued to rise. The FBM KLCI fell 2.6% in a week to 1,672.72 points last Friday.

Trading volume increased last week and indicated selling pressure. The average daily trading volume in the past one week was 2.4 billion shares, compared with 1.9 billion shares two weeks ago. The average trading value has also increased from RM1.9 billion to RM2.5 billion.

Foreign institutions, which have been seen as net buyers on Bursa Malaysia in the past few weeks, were starting to sell. Net selling from foreign institutions last week was RM431 million, while net buying from local institutions and local retailers were RM155 million and RM276 million respectively. The Ringgit was firm at RM3.91 to a US Dollar compared to the previous week.

Only three out of 30 counters closed higher in a week on the FBM KLCI. The top gainers in the week were IOI Properties Group Bhd (+0.8% in a week to RM2.42), Petronas Dagangan Bhd (+0.2% to RM23.84) and Petronas Chemicals Group Bhd (+0.2% to RM6.71). The top decliners were British American Tobacco (M) Bhd (-15.8% to RM45.88), SapuraKencana Petroleum Bhd (-7.3% to RM1.65) and Genting Bhd (-6.3% to RM8.84).

Markets in Asia were bearish. China’s Shanghai Stock Exchange Composite Index declined 0.7% in a week to 2,938.45 points last Friday. Hong Kong’s Hang Seng Index fell 1.9% in a week to 21,067.05 points, while Singapore’s Straits Times Index declined 3.5% to 2,838.52 points. The Nikkei 225 index plunged 5.1% in a week to 16,666.05 points last Thursday, after the Bank of Japan decided not to further cut rates to support economic growth. The market was closed for a public holiday last Friday.

The US and European markets pulled back for a correction last week. The US Dow Jones Industrial Average pulled back from its nine-month high and declined 1.3% in a week to 17,773.64 points last Friday. Germany’s DAX Index fell 3.2% in a week to 10,038.97 points after pulling back from its four-month high two weeks ago. London’s FTSE 100 Index shed 1.1% to 6,241.89 points.

The US dollar weakened against major currencies and the US dollar index fell to its lowest in eight months. The US dollar index futures declined from 95.1 points a week ago to 93.1 points last Friday. Crude oil rose to its highest level in five months. US crude oil (West Texas Intermediate) rose 5.1% in a week to US$46 (RM179.40) a barrel, the highest in six months. Commodity-exchange gold jumped 5% in a week to US$1,294.90 an ounce on a weak US dollar. Crude palm oil on Bursa fell 3.6% in a week to RM2,592 per tonne on prospects of higher output.

The FBM KLCI has turned bearish. The index fell below the short-term 30-day moving average and the immediate support level of 1,700 points. The index has also fallen into the Ichimoku Cloud and further decline could cause more selling pressure, especially below the bottom line of the cloud, which is currently at 1,663 points. However, the index is now at the long-term 200-day moving average and the uptrend line from August last year. Hence, we may see some support.

After showing signs of a weak bullish momentum two weeks ago, momentum indicators are now indicating strong bearish momentum. The relative strength index and moving average convergence divergence indicators are falling, and are nearing oversold levels. Furthermore, the index is trading below the bottom band of the Bollinger Bands indicator and this indicates strong selling pressure.

The FBM KLCI is now at a support level, based on the 200-day moving average, the Ichimoku Cloud indicator and the uptrend line from August last year. However, looking at the strong bearish momentum of the index and continuous bearish market performance globally, we may see the support level broken and the index fall to the next support level of 1,600 points possibly by this month. It looks like the market saying of “sell in May and go away” is happening.

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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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