Market bearish but near technical support

TheEdge Wed, Jan 15, 2020 10:34am - 4 years View Original


The market was probably the only market that fell last year while other established markets were very bullish. Markets in the US and Germany rose to historical highs. Clearly, confidence in the Malaysian market was weak in 2019.

This year, the Malaysian equity market started with uncertainty as the FBM KLCI was almost unchanged from last year’s close. The KLCI declined 1.2% in a week to 1,591.46 points. The index continued to decline this week and closed at 1,580.6 points yesterday.

The stronger ringgit, generally bullish global market performance and higher palm oil prices failed to boost market confidence. This shows that market sentiment remains weak.

Trading volume remained unchanged last week compared with the previous week. The average daily trading volume in the past one week was at 3.3 billion shares. However, the average daily trading value fell to RM1.9 billion from RM2 billion in the previous week. This clearly shows that the market was dominated by probably retail investors who preferred lower-capped counters.

For the KLCI, decliners beat gainers five to one. The top three gainers were RHB Bank Bhd (+1.7% in a week to RM5.85), Press Metal Aluminium Holdings Bhd (+1.7% to RM4.94) and Hong Leong Bank Bhd (+0.7% to RM17.56). The top three decliners were Malaysia Airports Holdings Bhd (-6.8% to RM7.05), Petronas Chemicals Group Bhd (-3% to RM7.24) and Petronas Dagangan Bhd (-2.8% to RM22.48).

Global markets were generally bullish. In Asia, most market indices closed high except for the KLCI. The US Dow Jones Industrial Average and Germany’s DAX Index climbed to historical highs. France’s CAC40 Index is trading near its historical high.

The US dollar slightly strengthened against major currencies. The US Dollar Index rebounded from a six-month low to 97.4 points last Friday from 96.8 points two weeks ago. The Malaysian ringgit was stronger against the US dollar at 4.08 per US dollar last Friday compared with 4.10 previously.

Gold prices rose last week as the US dollar weakened to a six-month low. Commodity Exchange gold increased 0.7% a week to US$1,563.20 (RM6,369.26) an ounce. Crude oil (Brent) rose 5.1% to US$65.07 per barrel. In the local market, crude palm oil rose 0.6% in a week to RM3,136 per tonne last Friday, the highest in nearly three years.

The KLCI pulled back for a correction last week after four weeks of declines. Technically, the immediate resistance is at 1,615 points and the immediate support level is at 1,570 points. Hence, the index is currently near the immediate support level.

Chart-wise, the KLCI remains bullish above the short-term 30-day moving average. It is also above the Ichimoku Cloud indicator. However, the index remains bearish in the short term below the 200-day moving average.

Market sentiment is weak. The sideways movement in the past one week  caused momentum indicators to decline. The Relative Strength Index and momentum oscillators are declining and the moving average convergence/divergence indicator is below its moving average.

Chart indicators are showing a bearish bias for the KLCI. However, the index is near the technical support level (1,570 points) and a rebound is expected and the index may test the resistance level at 1,615 points. However, if it breaks out below the support level, then further declines are expected and the next technical support level is at 1,550 points.

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 investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment adviser.

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