Trend turns bearish in short term

Last Friday was the last trading day for the first half of the year. The market has been bullish so far. The FBM KLCI is 7.4% higher year to date. However, the market has pulled back for a correction and declined for the past two weeks.

The FBM KLCI was at its immediate support level last week before the market closed for a long weekend holiday. In the short three trading days in the last week, the market was bearish on lack of catalysts as performances of global markets were generally weaker and the ringgit was also slightly weaker against the US dollar. Trading volume was also significantly lower as the market was still in holiday mood.

The FBM KLCI declined 0.9% in a week to 1,763.67 points last Friday. Yesterday, the index closed at 1,762.08 points. The average daily trading volume declined to 1.5 billion shares last week from 1.8 billion shares two weeks ago. The average daily trading value declined to RM2 billion compared with RM2.1 billion two weeks ago and this indicates lack of retail market participation.

Foreign institutions were selling last week on a weak ringgit. Net selling from foreign institutions was RM298 million while net selling from local institutions was RM296 million. The ringgit slightly weakened from RM4.28 to RM4.29 to a US dollar last Friday.

For the FBM KLCI, decliners beat gainers two to one. Top gainers for the week were KLCC Properties & REITS — Stapled Securities Bhd (+2.4% in a week to RM7.99), PPB Group Bhd (+1.9% to RM17.16) and Hap Seng Consolidated Bhd (+1.5% to RM9.23). Top decliners were Genting Malaysia Bhd (-5.7% to RM5.50), Astro Malaysia Holdings Bhd (-4.5% to RM2.53) and IHH Healthcare Bhd (-3.9% to RM5.75).

Asian markets ended up mixed. The bullish rally was led by Indonesia. The Jakarta Stock Exchange Composite Index rose to a historical high. The Shanghai Stock Composite Index rose to a two month high. US and European markets declined last week.

The US dollar weakened against major currencies. The US dollar index fell from 97.3 points to 95.6 points last Friday. Despite the weaker US dollar, Commodity Exchange gold prices fell 1.2% in a week to US$1,242.30 (RM5,341.89) an ounce. However, crude oil prices rebounded 5% higher to US$47.90 per barrel and crude palm oil futures increased 0.7% to RM2,455 per tonne.

The FBM KLCI fell below the immediate support level at 1,780 points and even tested the strong support level at 1,760 points. The index rebounded after testing this level. This shows some selling pressure.

Technically, the FBM KLCI is bearish in the short term as it remained below the short-term 30-day moving average and the short-term uptrend line. However, the trend is still bullish in the longer term as the index remained above the Ichimoku Cloud and the 200-day moving average. The last support level for the Ichimoku Cloud is at 1,750 points.

Momentum indicators are now indicating that the bearish momentum is strengthening. The Relative Strength Index indicator and momentum oscillators are below their mid-level. Furthermore, the index has fallen near the bottom band of the Bollinger Bands indicator.

The market, benchmarked by the FBM KLCI, is now turning bearish in the short term. However, it is still bullish in the long term. Hence, we are looking at a long-term bullish trend correction and therefore expect the index to test longer-term support levels.

The index is still above a strong support level at 1,760 points. With the strong bearish momentum, we expect the index to test and break below this level. If this happens, then expect the FBM KLCI to test the next support levels at 1,730 points (38.2% Fibonacci retracement level of the bullish trend that started since the beginning of this year) and 1,705 points (50% retracement level and the 200-day moving average).

The above commentary is solely used for educational purposes and is the writer’s point of view using technical analysis. The commentary should not be construed as an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.