Market expects mild consolidation

Published: Saturday July 27, 2013 MYT 12:00:00 AM
Updated: Saturday July 27, 2013 MYT 7:53:05 AM
Market expects mild consolidation

MARKET TREND BY K.M.LEE

REVIEW: Bursa Malaysia started out the new week on a steadier platform, with the FBM Kuala Lumpur Composite Index (FBM KLCI) rising 1.39 points to 1,799.13, extending the previous week’s winning streak.

Sentiment was positive while blue chips led the winners’ board, tracking the regional trend. Though there was some degree of buying interest in the market, the local investors were not interested in chasing after rising stocks, with a mixed to marginally lower showing in overnight Wall Street dampening investors’ mood.

Consequently, the local bourse traded range-bound and that was the trend until late trade, where an unexpected bout of selling emerged from the sidelines to force the market into the negative zone, easing a small 0.06 of a point to close at the day’s ebb of 1,797.68 on Monday, also snapping a three-day uptrend.

Theoretically, the local market is expected to sustain declines the next day but in stark contrast, Bursa opened firmer, with the key index jumping a significant 9.52 points to 1,807.20, saved by bullish Asian equities, especially a rally in Chinese shares.

Growing optimism that the Federal Reserve would keep its stimulus programme in place for some time added to the upbeat mood. But unlike certain regional peer, spiking as much as two per cent, Bursa was mostly range-bound once again, because some liquidation into strength somewhat capped the upside potential.

In range-bound session, the key index rose 7.63 points to 1,805.31 on Tuesday, a new peak on closing basis.

In another almost similar fashion, the FBM KLCI flirted between an intra-day low and high of 1,804.23 and 1,810.71, a 6.48 points band throughout before ending up 4.69 points to 1,810.00 in mid-week, another fresh all-time closing high.

Thereafter, the local bourse turned volatile in the absence of fresh market-stimulating news on the horizon, with global equities slipping from several weeks high on concerns about the health of the world’s second largest economy after China released a set of weak manufacturing data.

At home, the FBM KLCI see-sawed the flat line throughout before closing marginally easier, losing 1.58 points to 1,808.42 on Thursday. Yesterday, the local bourse surrendered early gains to finish down 0.81 point to 1,807.61, in line with regional trend, trading flat to weaker.

Statistics: Week-on-week, the principal index chalked up 9.87 points, or 0.5% to 1,807.61, compared with 1,797.74 on July 19. Volumes for the week stood at 6.834 billion shares valued at RM9.502bil, against 7.518 billion units worth RM11.102bil changed hands the prior week.

Technical indicators: The daily slow-stochastic momentum index continued to trend at the bullish territory on extended-move. It had issued a buy on July 11.

Meanwhile, the 14-day relative strength index sustained the upward thrust to end at the 82 points level, up from a reading of 77 a week ago. In addition, the daily moving average convergence/divergence (MACD) histogram expanded steadily against the daily signal line to retain the bullish note. It had called for a buy on July 2. Weekly indicators remained firm, with the weekly slow-stochastic momentum index scaling deeper into the bullish area and the weekly MACD keeping the buy signal.

Outlook: The bulls moved to a higher ground after overcoming the 1,800 points psychological barrier, but the pace of ascent was gradual, as there was a sense of cautious ness amid worries about a slowdown in China. The prevailing uncertainty on the subject of when the Federal Reserve would start rolling back its stimulus was another factor holding back investors’ enthusiasm. Based on the daily chart, the FBM KLCI has carved out a short-term bullish channel. As we can see, Bursa is pretty resilient while the bulls inched nearer to the historical peak.

If investors can keep the momentum going and continue to shake off any bad news going forward, a re-test of the all-time high of 1,826.22 may come about soon. A whipsaw also is possible, meaning the key index may make it to the uncharted territory, but a huge rally in the immediate term is slim, given the moderate level of trading volumes and the growing overbought condition, unless there is a solid catalyst coming to the fore.

Technically, indicators still are painting an encouraging landscape, implying the market is likely to firm. However, we reckon it may consolidate a bit here and there due to overbought reason and if so, sideways pattern would be the trend this week. A major breakout of the historic peak may drive the key index up to the 1,500 points barrier. Thereafter, resistance can be expected at every 20 points or 30 points interval.

Support is pegged at the 14-day simple moving average (SMA) of 1,792 points, 21-day SMA of 1,785 points, 50-day SMA of 1,775 points and at the 100-day SMA of 1,735 points.