Two weeks ago, the local market rebounded as economic stimulus packages were announced by the government amid an extended movement control order. The rebound, however, was weakened last week as Covid-19 cases rose sharply, particularly in the US and Europe. Global markets pulled back last week on profit taking.
The FBM KLCI declined 0.9% in a week to close at 1,330.65 points last Friday. However, the local market rebounded this week and the index closed at 1,369.92 points yesterday.
Trading volume increased last week, indicating that there was selling pressure as the market rebounded. The average daily trading volume was 4.4 billion shares, compared with 3.7 billion two weeks ago. However, the average daily trading value remained firm at RM2.5 billion, indicating that more lower-capped stocks, favoured by retail participants, were being traded.
For the KLCI, gainers pared decliners last week. The top three gainers were Sime Darby Bhd (+8.4% in a week to RM1.80), Press Metal Aluminium Holdings Bhd (+6.6% to RM3.25) and Genting Bhd (-4.7% to RM3.77). The top three decliners were Hong Leong Financial Group Bhd (-9.6% to RM12.30), Hap Seng Consolidated Bhd (-8.5% to RM7.14) and RHB Bank Bhd (-8.3% to RM4.56).
Global markets were mostly bearish. In Asia, the biggest decliner was Japan. The Nikkei 225 Index declined 8.1% in a week. Singapore’s Straits Times Index suffered a 5.5% decline as the prime minister announced new measures that do not allow businesses to operate except for essential products and services.
The US dollar rebounded against major currencies after declining sharply two weeks ago amid US President Donald Trump’s US$2 trillion (RM8.7 trillion) economic stimulus package. The US Dollar Index increased to 100.7 points last Friday from 98.4 points two weeks ago. The ringgit weakened to 4.35 against the greenback last Friday, compared with 4.32 the previous week.
Crude oil rebounded from an 18-year low last week after Trump said he had talked to Russia and Saudi Arabia to cut oil output. Crude oil futures (Brent) jumped 39.7% in a week to US$34.83 per barrel last Friday. Gold futures increased 1.5% to US$1,648.75 an ounce. BMD crude palm oil futures fell 5.5% in a week to RM2,245 per tonne, the lowest since October 2019. The price has fallen 25% year to date.
The KLCI fell below the immediate technical support level at 1,350 points last week. It is now testing the next support level at 1,250 points.
Technically, the trend was strongly bearish below the short- and long-term (30-day and 200-day) moving averages. The short-term trend has been technically bearish since early this year, while the long-term trend has been bearish since November 2018. Furthermore, the KLCI was below the Ichimoku Cloud indicator and the Cloud continued to decline, indicating a strong downtrend.
Momentum indicators indicated a strong bearish trend. The Relative Strength Index and Momentum Oscillator continued to fall and were at oversold levels. Furthermore, the Moving Average Convergence Divergence indicator was below the moving average.
We have seen the local market in a downtrend since November 2018 and any rebound attempt was greeted by more selling pressure. A plunge in crude oil prices and Covid-19 fears have accelerated the selling pressure since the beginning of this year.
Global markets are still incredibly uncertain and governments would not be able to stand still trying to figure out how to stabilise the markets. Lowering interest rates do not seem to provide any confidence. The US$1.5 trillion injection promised by the US Federal Reserve may provide some support to the markets but will it be able to turn the markets around? Only time will tell. One thing is for sure: The markets are going to remain volatile.
The local market may rebound as the index was at oversold levels. However, the market would still be in bearish mode unless there is a significant rebound. The short-term 30-day moving average was at 1,380 points, so go figure. If the index cannot even rebound above 1,380 points, then further declines are expected.
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.
https://www.theedgemarkets.com/article/market-oversold-technical-rebound-expected
