Trend stays bearish despite late week rally

  • Business
  • Saturday, 07 Dec 2019

The steady flux of rhetoric with regard to the Sino-US trade war is, somewhat surprisingly, yet to wear thin among investors as evidenced by the swift changes in sentiment seen of late.

Investors remain game to track any bit of information offered by policymakers, however subtle or indeterminate, and react accordingly.

However, confidence over a US-China trade deal by Dec 15 this year is dissipating among the weak of heart and investors were seen cashing out of a market that had priced in a preliminary trade deal between the two nations.

US markets showed trepidation at the start of the week on the back of the White House ratifying a bill backing civil rights protestors in Hong Kong.

Over the Monday and Tuesday sessions, the Dow Jones shed over 3.5% in a turn of investor sentiment

Similarly on Bursa Malaysia, investors deemed the uncertainty too risky to establish a buying mood.

While the FBM KLCI rebounded to the 1,570 support-turned-resistance on Monday, the recovery could not gain traction.

This could be blamed on geopolitical tensions that worsened over Monday night as Trump slapped steel and aluminium tariffs on Brazil and Argentina, and threatened to impose levies on US$2.4bil worth of French goods.

On Tuesday, the FBM KLCI erased nearly all the gains it had made in the previous session, and retreated to 1,562.27.

The bearish mood was exacerbated by comments from US President Donald Trump that he was in no rush to sign a trade deal, which sent investors scurrying for cover.

By Wednesday, the market fell to 4 ½-year lows of 1,550, which currently serves as a crucial support, before rebounding in late-session buying.

In the final hour of trading, some fund buying of heavily weighted Tenaga Nasional stocks helped to lift the overall market off the safety mark.

Further evidence that the trade deal will not go through by this year would likely cause a negative breach of the support, making developments over the coming week all the more nerve-wracking for investors.

From a technical standpoint however, the fact that the support stayed intact during the decline could be seen as a signal for a positive turn in the market outlook.

The slow-stochastic momentum index had been moving in oversold conditions following the onset of a downtrend from Nov 12.

With the indicator seen creeping higher towards the neutral zone, the potential for a rebound grew stronger.

By Thursday trading, there were early signs of a technical retracement even as White House officials downplayed Trump’s earlier rhetoric and affirmed that the trade negotiations were moving along as planned

Global markets predictably rose on the news, and similarly on the local market there was some positive, albeit slight, price action.

The market closed 2.65 points higher at 1,563.58.

Trump ended the week trying to console markets by doubling down on his comments that the trade talks “were coming along very well”.

The plantation sector on Bursa showed the beginnings of an uptrend with players such as Sime Darby Plantation, KL Kepong, IOI and United Plantation picking up buying interest on continued optimism over CPO prices.

At the end of Friday trading, the FBM KLCI had advanced 4.68 points to 1,568.44

Statistics: The major index ended the week 6.7 points, or 0.4% higher over the previous Friday, at 1,568.44.

Total turnover for the trading week stood at 11.39 billion shares amounting to RM8.1bil compared with 13.17 billion shares worth RM11.2bil over the previous trading week.

Outlook: Having lost the 1,570 support in the previous week, there was an early attempt on Monday to regain lost ground.

The rebound, however, fell short of crossing the resistance.

Subsequent price movements over the week would leave the 1,570 hurdle intact, suggesting that the rebound could already be facing a temporary stop.

Ultimately, the daily price chart looks little changed from the previous week

However, there is consolation in knowing that the 1,550 support has proved to be reliable and a stiff buffer against further declines.

Over the course of the coming week, a breach of 1,570 could see the index aiming to return above the 50-day simple moving average.

Such an advance would indicate the return of bullish sentiment to the index, and put it on course to a challenging the 1,600 mark.

Looking at the technical indicators, there are mixed signals at this juncture, suggesting that a consolidation phase is starting.

Following on from the previous week, the slow-stochastic momentum index has continued on its positive growth and lifted out of oversold levels to neutral ground

The daily moving average convergence/divergence (MACD) line however continues to show a negative trend.

The MACD showed signs of flattening out yesterday but further sessions of buying would be needed to turn its trajectory around.

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