Review: Volatility and panic was the theme of the week’s equities landscape. Just as observers had cautioned on overheating and the overbought US equity market environment, the recent declines on Wall Street put a screeching halt to the bull trend.
As at the latest sell-off yesterday, analysts steadfastedly tried to soothe the nerves of fleeing investors, confident in the belief that strong economic fundamentals and corporate earnings will ensure the steady performance of markets.
The pullback was triggered by a US payroll report yesterday that saw wages rising and giving rise to expectations of higher inflation and more Fed hikes. The attendant result would be the shutting of the money taps and the end to an era of easy money.
It was the catalyst for a correction, long overdue some say. These are the same parties who tout the pullback as healthy for the market in the longer term as it establishes a more sustainable footing for share prices.
Over the course of two-day decline on Friday and Monday, the Dow Jones Industrial Average slipped nearly 1,850 points. On Tuesday night, the index slipped as much as 567 points in intra-day trade, pushing cumulative losses across the 10% threshold and into correction mode.
The oversold conditions of the US markets meant a technical rebound was due. As selling continued at Tuesday’s US open, the markets dipped further into oversold territory, paving the way for prices to retrace losses by late afternoon.
In a wild swing to the upside, the Dow Jones finished 576 points or 2.33% higher.
The S&P 500 and Nasdaq Composite followed suit, ending the day’s session 1.7% and 2.1% higher respectively.
On Bursa Malaysia, the start of the week saw furious selling by foreign investors. Monday displayed symptoms of a sharp retreat as overseas investors turned net sellers of RM268mil, but on Tuesday, the net withdrawal was palpable to the tune of RM868mil.
Immediate support levels on the benchmark FBM KLCI gave way in succession, and the index fell a total of 58 points over the course of two days. The 1,800 key support held, however, despite a brief dip into 1,796. It served as a platform for a positive bounce, ending Tuesday’s session at 1,812.
A sense of normalcy returned to the local market on Wednesday following the US’s Tuesday night rebound. The FBM KLCI followed suit by retracing losses, rising 24 points to 1,836.88.
Foreign investors also failed to return to the local market, registering another net outflow on Wednesday, suggesting that the keen interest in emerging markets had faded from the change in investment landscape.
Global markets continued to be jittery as evidenced by the unsteady performance in the wider regional markets. The rebound in Asia failed to hold any conviction and the results were mixed, with the strongest perfomers making slight retracements.
Wall Street proceeded with another slight dip into the red overnight but the local market held steady on Thursday. The FBM KLCI put in a positive performance, rising a modest 2.76 points to 1,839.44.
On Thursday night, Wall Street dashed Asia’s hopes of restarting the bulls. The Dow Jones skidded 4.15%; the S&P 500, 3.75%; and the Nasdaq, 3.9% to put the US market firmly into correction mode. On Friday, the FBM KLCI closed 19.62 points lower at 1,819.82.
During the course of the week, the US dollar mounted a march against global currencies. The US dollar index rose about 1.6% to 90.165.
The ringgit, while holding firm against other major currencies, weakened against the US dollar to 3.93 yesterday.
Oil prices suffered a double blow in the form of the rising US dollar and shale oil production levels. Brent crude headed towards US$64 a barrel while WTI dropped towards US$60.
Statistics: Week-on-week, the FBM KLCI lost 50.66 points, or 2.7%% to 1,819.82 points yesterday, versus 1.870.48 points on Feb 2. Total turnover for the week stood at 15.69 billion shares amounting to RM16.44bil, compared with the previous week’s three-day market volume of 8.87 billion units valued at RM8.64bil.
Overview: While the local market is tracking the corrective energy of Wall Street, it is holding within a range of 1,800 to 1,840, suggesting that the local market is moving towards a period of consolidation rather than correction. Stateside, analysts are sharing the belief that the Wall Street sell-off will lead to a rebound before things deteriorate into a bear market.
The technical indicators indicate a shift in momentum in the local index, but that a firm downtrend has not yet taken hold. The slow-stochastic has crossed into a “buy” signal. The daily moving average convergence/divergence, which signalled a bearish divergence preceding the week’s decline and crossed into a “sell” signal on Monday, remains afloat above the zero line.
The FBM KLCI will see resistance at the 1,825 mark and 1,840 above that. Despite the nervous energy that has taken over the equities markets, 1,800 has proven to be a reliable springboard against the negative retracement. Should it break on the downside, there is further support at 1,785.
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