Market breaks and corrects

by **Cals** Mon 17 Mar 2014, 02:59

ublished: Saturday March 15, 2014 MYT 12:00:00 AM
Updated: Saturday March 15, 2014 MYT 11:02:42 AM
[size=40]Market breaks and corrects
BY MARKET TREND K.M LEE[/size]
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REVIEW: Equities in Asia Pacific, including those on Bursa Malaysia, were on the defensive mode at the start of the week, with the FBM Kuala Lumpur Composite Index (FBM KLCI) slumping 5.88 points to 1,826.38, extending the previous session’s fall amid follow-through liquidation pressure.
Sentiment was bearish amid uncertainty in Ukraine, exacerbated further by poorer-than-expected economic figures out from China.
Meanwhile, China’s inflation rose 2% year-on-year in February, easing from 2.5% in January, prompting economists to warn that the risk of deflation was rising while official data showed exports fell 18.1% to US$114.10bil in February, reviving concerns about a slowdown in the world’s second largest economy.
As usual, blue chips topped the losers board in early business and soon, the key index plummeted to a low of 1,817.20.
But, just when it looked frail and in great danger of violating the 100-day simple moving average line, a bout of bargain hunting came to the fore, helping the market to trim losses slightly to trade range-bound for the rest of the day.
At the close, the local bourse still declined some 10.20 points to 1,822.06 in lacklustre note on Monday.
Despite a lower Wall Street overnight, regional markets, nonetheless, staged a rebound the next day as investors emerged from the sidelines to scoop up battered shares. Though there was a bit of buying of risky assets, the overall mood was cautious.
Mirroring the regional trend, the FBM KLCI flirted between an intra-day high and low of 1,828.73 and 1,823.54 respectively, a very tight 5.19 points throughout before finishing 6.49 points higher to 1,828.55 on Tuesday.
After a short pause, overseas markets resumed their downward spiral as fresh economic uncertainty in China and the United States, combined with rising tension in Ukraine, sent investors running to the sidelines.
Against the negative backdrop, Bursa succumbed to tremendous stress to retreat, hitting a low of 1,813.49 in the morning before paring losses marginally to close down 9.95 points to 1,818.60 in sluggish trade in mid-week.
Thereafter, the market drifted within a narrow range, ending little changed, up 0.26 of a point to 1,818.86, awaiting a clearer picture to emerge on Thursday before resuming the slide yesterday, shedding 13.74 points to 1,805.12, depressed by growing tension in Ukraine and worries that China’s economy may be slowing more than expected.
Statistics: For the week, the principal index lost 27.14 points, or 1.5% to 1,805.12 yesterday, compared with 1,832.26 on March 7.
Weekly turnover stood at 8.145 billion shares valued at RM10.339bil, versus 10.552 billion units worth RM10.571bil done a week ago.
Technical indicators: The daily slow-stochastic momentum index was on the slide. Its oscillator per cent K reversed down from the 70% level and slipped below the oscillator per cent D to trigger a short-term sell on Monday.
The past week saw the 14-day relative strength index retreating from about the 60 points level to end at the 34 points yesterday.
In addition, the daily moving average convergence/divergence (MACD) histogram continued to expand negatively against the daily signal line to stay bearish. It had triggered a sell on Monday.
Weekly indicators were deteriorating, with the weekly slow-stochastic momentum index issuing a sell call and the weekly MACD resuming the downward expansion against the weekly signal line.
Outlook: Bursa slipped into correction mode, with the FBM KLCI suffering losses for the second consecutive week, weighed down by frail economic data from the United States and China and heightening tension in the Ukraine.
Based on the daily chart, continuous decline in the market has resulted in the key index tripping below the lower horizontal line of the of the existing rectangular box, thus triggering a breakdown yesterday.
If the breakdown is very much similar to what happened in 2010, then, investors can expect the FBM KLCI to retreat significantly in the short term before we could see the bulls bouncing back with vengeance and navigate the market to a new high.
Technically, indicators are waning, suggesting the local bourse will probably stay in correction this week, with renewed uncertainty clouding global equities.
Initial support is pegged at the 200-day simple moving average of 1,794 points. A crack of the five-year ascending trend line, resting at 1,766 will have a negative impact on the market going forward. Stiff resistance can be expected at the 1,840 points, followed by the 1,850-1,852 points band and the next, at the historical peak of 1,882.20 points.