FBMKLCI - Market is directionless

This article first appeared in The Edge Financial Daily, on June 1, 2016.

The FBM KLCI is still unable to break away from its sideways range of between 1,610 and 1,640 points. The index has been in this range for the past two weeks. However, the index is close to breaking above the resistance level. The market was supported by local institutions and the rebound in oil and gas stocks helped lift the index higher. The FBM KLCI rose 0.5% in a week to 1,637.19 points.

The average daily trading volume in the past one week has been almost the same as in the previous two weeks at 1.8 billion shares. The average trading value declined from RM1.9 billion to RM1.8 billion.

Net buying by local institutions last week was RM679 million and local retail buying was at RM30 million. Foreign institutions’ net selling was at RM709 million. The Malaysian ringgit slightly strengthened from 4.07 to a US dollar to 4.06 in a week.

For the FBM KLCI, gainers outpaced decliners two to one. Top gainers for the week were PPB Group Bhd (+7.5% in a week to RM16.74), Petronas Chemicals Group Bhd (+7.1% to RM6.64) and Petronas Dagangan Bhd (+4.4% to RM23.70). Top decliners were UMW Holdings Bhd (-14.1% to RM5.18), Axiata Group Bhd (-3.4% to RM5.34) and Malayan Banking Bhd (-2.6% to RM8.27).

Markets in Asia were mixed, but generally more bullish than in the previous week. China’s Shanghai Stock Exchange Composite Index has been directionless in a tight trading range in the past one week and closed marginally lower at 2,821.54 points last Friday. Hong Kong’s Hang Seng Index rebounded and increased 3.6% in a week to 20,576.77 points and Singapore’s Straits Times Index rose 1.4% to 2,802.51 points. The Nikkei 225 increased only 0.6% in a week to 16,834.84 points.

US and European markets were mixed. The US Dow Jones Industrial Average increased 2.1% in a week to 17,873.22 points. Germany’s DAX Index jumped 3.7% in a week to 10,286.31 points and London’s FTSE 100 Index rose 1.9% to 6,270.79 points.

The US dollar continued to strengthen against major currencies. After three weeks of rises, the US Dollar Index Futures increased another week from 95.3 points the previous week to 95.5 points last Friday. Crude oil price rose to its highest in 10 months last week. US crude oil (West Texas Intermediate) increased 2.2% in a week to US$49.56 (RM204.68) per barrel. However, commodity exchange gold lost its shine and fell 3.2% in a week to US$1,212.40 an ounce. Crude palm oil on Bursa Malaysia rebounded, rising 1.2% in a week to RM2,558 per tonne on demand optimism.

The FBM KLCI technical readings on the chart remained the same as the market was directionless. The trend remained bearish below both the short- and long-term 30-day and 200-day moving averages. The index is also below the Ichimoku Cloud indicator and the widening cloud indicates that there is still strong resistance, at least for another week when the cloud gets thinner.

Momentum indicators are still bearish on the FBM KLCI, but they also indicate that the bearish trend has weakened. This indicates that market confidence is strengthening. The Relative Strength Index continued to climb towards its mid-level. The moving average convergence divergence indicator has crossed above its moving average and the FBM KLCI is about to climb above the middle band of the Bollinger Bands indicator.

The index has to break above the immediate resistance level at 1,640 points to turn bullish. The thinning Ichimoku Cloud indicator indicates resistance is weakening, and hence there is a high possibility for the index to break above the resistance level.

A breakout above this level could bring the FBM KLCI to test the short- and long-term 30-day and 200-day moving averages at 1,660 points. However, if the index fails to break above the resistance level, then expect the market to continue to be directionless in uncertainty.

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 bennylee.kl@gmail.com. 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.
FBMKLCI - Market is directionless