Tariff and technology tantrums
Lee Cheng Hooi 
The February money supply (M3) growth picked up pace to +4.9% from January’s +4.6% on swifter credit growth and higher external reserves which offset sluggish deposit growth.

Despite outflows of portfolio capital from net foreign equity and bond selling, money supply increased. Bank Negara Malaysia revised its official 2018 real GDP growth forecast upwards to 5.5-6% from the 5-5.5% growth forecast made in October.

On the local equity market, the key benchmark FBM KLCI index remained much weaker after volatile global markets caused its downside movements. 

The key market barometer traded within a much wider 54.79-point weekly range due to the wild downward global gyrations.

The daily traded volume of shares surged for the week from 1.82 billion to 3.28 billion. The index tumbled 34.84 points to 1,815.94 on April 4 with obvious blue-chip selling activities on an expanded daily volume of 3.28 billion.

Institutional selling on key blue-chip stocks like AMMB Holdings Bhd, CIMB Group Holdings Bhd, Digi.Com Bhd, Genting Bhd, Genting Malaysia Bhd, Genting Plantations Bhd, Hong Leong Bank Bhd, Hong Leong Financial Group Bhd, Malayan Banking Bhd, Maxis Bhd, Nestle (M) Bhd, Petronas Chemicals Group Bhd and Telekom Malaysia Bhd prompted the index to end weaker.

At Wall Street, markets rebounded on bargain hunting after crashing through key technical levels in early April led by a weaker technology sector. The late rebound on April 3 emerged as investors shrugged off an on-going trade tariff war between the US and China.

Bottom fishing on technology firms also was apparent after diminishing concerns of increased regulation weighed on these stocks recently. US President Donald Trump’s earlier verbal attacks against Amazon.Com over antitrust and postage issues had caused great volatility initially.

At market close, the Dow Jones Industrial Average Index surged 389.17 points to 24,033.36 while the S&P 500 Index gained 32.57 points to 2,614.45 and the Nasdaq Composite Index rose 71.16 points to 6,941.28.

As China announced further tariffs on 106 US products – especially on soybeans, beef, aircraft and autos – Asian markets plunged together with the US futures markets in late afternoon trading on April 4.

The KLCI made a clear Wave “C” low at 1,708.48 on Dec 5. The index then surged upwards on a weaker Failed Fifth Elliott Wave high of 1,876.87 on March 22. It has now fallen off since that 1,876.87 high on its next retracement move towards the downside.

The daily price bars for the KLCI are below the 18 and 40 simple moving averages (SMAs) since April 3 and depicts a bearish phase currently. The weaker daily and weekly Gann Swing chart readings also concur and are synonymous with the downward phase that began in early April.

The KLCI chart readings are all weaker with its Channel Commodity Index (CCI), Directional Movement Index (DMI), Moving-Average Convergence Divergence (MACD), Price Oscillator and Stochastic displaying negative signals.

Support levels for the index are at 1,760, 1,795 and 1,811 while the resistance levels are at 1,815, 1,834 and 1,867 for this week.

The KL Technology Index’s (KLTECH) minor Fifth Wave move stalled at 44.61 (Jan 9) with very obvious bearish divergence indicators and daily Bearish Engulfing candlestick pattern. Since that high of 44.61, the index is correcting on its next main downward move.

The short-term Elliott Wave count shows a minor First Wave low of 40.19 and a minor Wave 2 rebound high at 41.5. The subsequent move towards the low of 29.07 constitutes a downward minor Wave 3 move in progress.

Any retracement move for the KLTECH could be confined within the minor Wave 4 retracement levels of 31.75 and 33.52 before an eventual move to its minor Wave 5 downside targets of 22.52, 21.72 and 19.18 respectively.

With the KLTECH’s price bars moving below 18 and 40 SMAs with an obvious sign of the “Dead Cross” since Feb 5, there will be obvious propensity for further downside on this index. 

The KLTECH’s downward daily and weekly Gann Swing chart readings are in tandem with the weaker downside view.

The KLTECH chart readings are all weaker with its CCI, DMI, MACD, Price Oscillator and Stochastic displaying negative signals.

Support levels for the KLTECH are at 24.41, 26.45 and 28.03 while the resistance levels are at 29.07, 33.73 and 35.57 for this week.

The KLCI remains mired in a bearish mode in ranges of 1,760 to 1,867 for this week. Local economic focus would be on the release of the February year-on-year (yoy) Industrial Production (April 11) and Retail Sales and Unemployment Rate (both on April 12).

American investors would expect a bearish market tone for the US as participants await forthcoming economic data like the March yoy Inflation and Core Inflation Rate as well as the April Michigan Consumer Sentiment due out on April 11 and 13 respectively. 

Lee Cheng Hooi was a former head of research at a local investment bank. The information he provides does not constitute a recommendation to buy or sell stocks

This article first appeared in Focus Malaysia Issue 279.