Trading momentum on KL bourse set to slow

LITTLE UPSIDE: Market likely to take cue from external news and conclusion of the Q1 2013 reporting season

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BETTER-than-expected consumer sentiment data in the United States and
strong rotational buying interest on lower liner construction, property
and oil & gas stocks helped lift the broader Bursa Malaysia stock
market early last week.

However, excessive overbought momentum
and a severe correction on Japan's stock market last Friday, sparked by
China's weaker-than-expected manufacturing data, triggered a
profit-taking correction as investors cashed out profits ahead of the
Wesak Day holiday weekend.

Nonetheless, the FTSE Bursa Malaysia
KLCI (FBM KLCI) still gained 3.9 points, or 0.22 per cent, for the week
to 1,773.06, with gains in CIMB (+18 sen), Public Bank (+18s en) and
IOI Corp (+11 sen) offsetting losses on Genting Bhd (-46 sen) and
Petronas Gas (-90 sen).

The average daily traded volume and
value increased further to 2.74 billion shares worth RM2.94 billion,
compared with the 2.54 billion shares worth RM2.58 billion the previous
week, as trading participation in speculative lower liners and
small-cap penny stocks remained strong.





Market direction this week hinges on reaction to external news flows and
the outcome of first quarter 2013 results reporting season that will be
concluded on Friday.

As far as results are concerned, no major
surprises so far. Most index heavyweight banking, plantation, power,
telco and oil & gas stocks like Maybank, Public Bank, CIMB, IOI
Corp, KL Kepong, TNB, Axiata, Maxis, Petronas Gas and Petronas Dagangan
reported earnings that largely came within consensus expectations,
except for DiGi that reported lower-than-expected earnings on
combination of increased costs and higher contribution of non-voice
revenues that carry lower margin.

Some other heavyweights that
are due to announce their earnings this week are Sime Darby, Genting
and Petronas Chemical. Sime could report results that are lower both on
year-on-year and sequential basis due to weaker plantation (lower crude
palm oil prices) and industrial (weaker mining activities in Australia
and weaker demand locally due to delays in economic activities, no
thanks to the 13th General Election) earnings.

Softer earnings
are on the cards for Genting Bhd after witnessing lower-than-expected
results from Genting Singapore due to low win rate in the premium
segment. Most brokers are already anticipating this and cut their
earnings much earlier.

Petronas Chemical's earnings are expected
to improve sequentially on the back of recovering prices amid improved
demand (partly due to restocking as well) and tight supply of key
petrochemical products for both its olefins & derivatives and
fertilisers & methanol segments. Any surprises to the contrary will
have impact on their respective share prices.

The US markets will
be closed today for Memorial Day. Indication of continuous improvements
in property prices, when the S&P/Case-Shiller index of property
values in 20 cities are announced tomorrow, will be catalytic in raising
consumption and the US economic growth as rising home equity will boost
consumers' finances and confidence.

The Conference Board's
consumer confidence index, which is due tomorrow, and the Thomson
Reuters/University of Michigan sentiment gauge, that would be released
this Friday, are expected to mirror a very upbeat consumer appetite.

The
improving sentiment would most likely be reflected in the US first
quarter gross domestic product as well, which will be released this
Thursday. Consensus expectations are pointing towards a 2.5 per cent
annualised rate, which is the same as estimated last month.

In a
nutshell, as most events/announcements are expected to fall within
consensus expectations, investors may see limited upside for the FBM
KLCI index this week. As technical indicators are showing overbought
conditions, it would be wise to lock in some profits in overvalued blue
chip counters and switch the attention to lower liners with good growth
stories.

Technical Outlook

However, spot month May
FBM KLCI futures contract traded on the Bursa Malaysia Derivatives Bhd
slipped another two points, or 0.11 per cent, last week to 1,764,
expanding to a larger 9.1-point discount against a 3.16-point discount
to the cash index the previous Friday, as long liquidations and
short-selling in the futures market increased tempo due to the
heightened profit-taking interest on the cash market.

The local
stock market rose on Monday, lifted by regional strength encouraged by
strong US consumer sentiment data, with lower liners leading gains. The
FBM KLCI rose 7.99 points to close at 1,777.15, off an early low of
1,770.95 and high of 1,781.05, as gainers swarmed losers 845 to 163 on
robust trade totalling 2.95 billion shares worth RM2.82 billion.

Stocks
extended gains the next day with strong rotational buying interest
lifting lower liner construction, property and oil & gas stocks. The
FBM KLCI added 10.23 points to settle near session highs at 1,787.38,
off an early low of 1,776.82 as gainers led losers 633 to 363 on active
trade totalling 2.96 billion shares worth RM3.01 billion.

Profit-taking
surfaced in the afternoon trading on Wednesday to drag lower liners and
small-cap stocks off their highs as investors cashed out gains after
the recent rally. The FBM KLCI shed 3.5 points to close at 1,783.88,
off a high of 1,795.59 and low of 1,781.14, as losers beat gainers 618
to 323 on heavy trade totalling 2.87 billion shares worth RM2.97
billion.

The profit-taking correction continued ahead of the
weekend, with sentiment dampened further by regional losses led by
Tokyo's Nikkei index that slumped more than seven per cent as China's
weaker-than-expected manufacturing data raised growth concerns. At the
close, the index lost 10.82 points to end at 1,773.06, off an early high
of 1,786.03 and low of 1,765.62, as losers trashed gainers 808 to 160
on reduced turnover of 2.14 billion shares worth RM2.96 billion.

Trading
range for the local blue-chip benchmark index increased to 29.97 points
last week compared to the 28.42 points range the previous week. For the
week, the FBM-EMAS Index rose 44.5 points, or 0.36 per cent, to
12,216.68, while the FBM-Small Cap Index added 252.16 points, or 1.79
per cent, to 14,359.27, as small-cap stocks continued to draw in keen
speculative buying interest.

A third sell signal triggered on the
daily slow stochastic indicator for the FBM KLCI implies further
downside correction risk this week, reinforced by a bearish hook-down on
the weekly indicator's signal line.

The 14-day Relative
Strength Index (RSI) indicator continued turning lower after the recent
hook-down to force a weaker reading of 61.19 as of Thursday, while the
14-week RSI registered a flat overbought reading at 71.46.

Meantime,
a fresh sell signal flashed on the daily Moving Average Convergence
Divergence (MACD) trend indicator, but the weekly MACD is still
expanding positively to confirm a sustained longer term uptrend. The
14-day Directional Movement Index (DMI) trend indicator also reinforced
the uptrend signal on the weekly MACD, with the +DI and -DI lines
expanding positively on a slightly inclining ADX line.

Conclusion

Given
the fresh sell signals on daily slow stochastics and MACD trend
indicators on the FBM KLCI, expect further downside bias for the
blue-chip benchmark this week which is needed to fully neutralise
short-term overbought momentum.

Trading momentum should also
slow due to the two-week school holiday break, which should cushion
downside as selling pressure eases while bargain hunters return to buy
back on dips for rebound profits ahead.

Important chart supports
for the index this week will be the last week's low of 1,765, followed
by the pivot lows of 1,752 of May 10 and 1,743 of May 6, while the
1,718 to 1,743 gap will act as a critical support platform.

On
the upside, immediate resistance remained at 1,791, representing the
138.2 per cent Fibonacci Projection (FP) of the 1,526 low of May 2012
to the 1,718 high of April 2013, with 1,814, the subsequent 150 per cent
FP, and the record high of 1,826 acting as tougher upside hurdles.

On
stock picks, chart-wise, investors should look to bargain-hunt on
further weakness in lower liner stocks in the construction and oil &
gas sectors like Alam Maritim, AZRB, Benalec, Binapuri, TRC Synergy
and WCT for further medium-term upside.

The subject expressed above is based purely on technical analysis and opi-nions of the writer. It is not a solicitation to buy or sell.