This article first appeared in The Edge Financial Daily, on January 13, 2016.

The market has declined for the second week since the new year as sentiment remains bearish due to weak performances by markets, the weak ringgit and a further decline in crude oil prices. 

The FBM KLCI declined 1.5% in a week to 1,641.37 points yesterday, breaking below the immediate support level at 1,650 points that we established last week. The ringgit weakened against the US dollar from 4.34 last week to 4.41 yesterday.

Trading volume increased in the past one week and the focus was on lower-cap stocks. The average daily trading volume in the past one week was 2.3 billion shares compared with 1.8 billion shares two weeks ago, and the average trading value rose from RM1.8 billion to RM2.2 billion. 

The market continued to be supported by local institutions as foreign institutions intensified their selling last week. Net selling (From Monday to Friday last week) from foreign institutions was RM614 million and net buying from local institutions and local retailers were RM560 million and RM54 million respectively.

For the FBM KLCI, decliners beat gainers 5 to 1. Top gainers for the week were IOI Properties Group Bhd (+3.6% in a week), Genting Bhd (+2.7%) and British American Tobacco (M) Bhd (+1.6%). Top decliners were SapuraKencana Petroleum Bhd (-10.6%), Astro Malaysia Holdings Bhd (-7.6%) and CIMB Group Holdings Bhd (-6.8%).  

Worries over China’s economy weighed down regional market performances. China’s Shanghai Stock Exchange Composite fell 8% in a week to 3,023.19 points yesterday. Hong Kong’s Hang Seng Index declined 7% to 19,711.76 points, the lowest since September 2012. Singapore’s Straits Times Index fell 5% in a week to its four-year low at 2,691.37 points. Japan’s Nikkei 225 index fell 6.3% in a week to 17,218.96 points.

The bearish sentiment was also extended to US and Europe markets. The US Dow Jones Industrial Average declined 4.4% in a week to 16,398.57 points on Monday. Germany’s DAX Index fell 4.5% in a week to 9,825.07 points and London’s FTSE 100 declined 2.8% to 5,885.7 points, near a three-year low.

The US dollar index futures declined marginally from 99 points last week to 98.7 points on Monday. Comex gold price increased only 1.8% in a week to US$1,093.70 (RM4,834.15) an ounce as investors continued to hedge bearish market performances. WTI crude plunged 15.7% in a week to US$31.13 barrel, the lowest in nearly 12 years. Crude palm oil on Bursa Malaysia declined 2.8% in a week to RM2,383 per tonne for a correction, tracking declining crude oil and soybean oil prices. 

The FBM KLCI failed to recover after breaking below the short-term 30-day moving average last week. The FBM KLCI is also below the Ichimoku Cloud indicator and this indicates a bearish market. The trend is expected to remain bearish as long as it stays below the resistance levels from these indicators at 1,680 points.

The momentum indicators suggest a further decline for the FBM KLCI. The declining RSI and MACD indicators indicate a strong bearish momentum. Furthermore, the index has fallen below the middle band of the Bollinger Bands and the bands are starting to expand. This indicates that the bearish momentum is gaining strength. However, there will be an indication of support if the index can stay above the immediate resistance level at 1,620 points. 

Last week, I mentioned that if the index breaks and stays below 1,650 points, it may test the next support level at 1,620 points. The stronger bearish momentum in the past one week suggests the index moving to this level this week. Weak fundamentals, especially the weaker ringgit and falling commodity prices, could cause market sentiment to remain bearish. A breakout below 1,620 points could lead to a more significant decline, like what happened in the second quarter of last year.

Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at bennylee.kl@gmail.com. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions.