KLCI week ahead KLCI to stage further sideways correction

by **Cals** Mon 16 Jun 2014, 03:00

KLCI week ahead KLCI to stage further sideways correction

Business & Markets 2014

Written by Surin Murugiah of theedgemalaysia.com

Saturday, 14 June 2014 10:58

KUALA LUMPUR (June 14): The FBM KLCI is expected to state further sideways correction next week in light of the muted market, given the quieter local economic calendar as well as the ongoing FIFA 2014 World Cup that has somewhat diverted investor attention.
Elsewhere, U.S. stocks edged up on Friday, boosted by bullish news from the tech sector, but major indexes fell for the week as unrest in Iraq kept investors on edge, according to Reuters.
Escalating violence in Iraq drove crude oil prices to nine-month highs on Friday while damping the appetite for risk, even as bullish news from the U.S. tech sector lifted shares on Wall Street and helped buoy stocks in global equity markets, it said.
Affin IB vice president and head of retail research Dr Nazri Khan said that going forward, he expects the FBM KLCI to stage further sideways correction between 1860-1880 range level.
He said that was noticeably a major weakness in the global market, with Dow and S&P continue to step back after hitting all time high early this week.
A combination of several short term forces appears at work in pressuring global shares, including non-inspiring USA economic data, violence in Iraq, rising oil price, corporate profit warnings and a downgraded global growth outlook from the World Bank, he said.
Nazri, who is also president of the Malaysian Association of Technical Analysts said that on the domestic front, the FBM KLCI failed to breakout from 1880-1860 range due lack of new buying, a perceived elevated valuation multiples and relatively few fresh fundamental catalysts.
He added that the Malaysian economic calendar was also quiet this week, which was expected to keep the focus on outside events for direction.
“On the technical front, we see signs of a fatigue runaway bull market, with the FBM KLCI struggling to exit from its four week consolidation pattern indicating more congestion ahead.
“A break above 1,880 level will reflect a shift in bullish sentiment and push for a rally towards 1,900 while any downside action below uptrend line support at 1,860 will draw greater selling pressure towards 1,830 and relieve its weekly overbought technical conditions,” he said.
Nazri said that from a pure cycle analysis, seasonal trends in the festive World Cup weeks usually favour a weak finish to the month of June with profit taking normally start in early May and end in early July.
However, he said that despite the lagging Bursa equity market, the FBM KLCI was holding up well above 1,860 support level due to Bursa high dividend appeal, resilient domestic liquidity and its lower vulnerability to foreign investor withdrawals.
He said the next area of resistance was around 1,880 and 1,900, while support hits at 1,860 and below there at 1,850.
Nari said that stock-wise, traders should accumulate construction and plantation stocks which do well as the ETP projects announcement and Hari Raya season approach in the early 2H2014.
“Our top ten featured stocks include Astro, Digi, Hap Seng, IJM, Pintaras, Protasco, Jaks, IJM Plantation, Sarawak Plantation and Kimloong.
“Over the medium term, despite the global market pullback, we see no evidence for gloom-and-doom stories about the USA and Eurozone recovery which should be supportive for Asian region,” he said.
Nazri said that the ongoing pace of the recovery, signs of low inflation, ultra loose policy of major central banks, potential mega stimulus from the European Central Bank and possibly Bank of Japan should add more momentum to local equity price movement in 2H2014.
“Aggressive bulls might therefore consider buying the FBM KLCI futures on temporary weakness toward 1,860 targeting an upper range of 1,900 psychological level,” he said.