Volatility may prevail

by **Cals** Mon 02 Sep 2013, 05:33

Published: Saturday August 31, 2013 MYT 12:00:00 AM
Updated: Saturday August 31, 2013 MYT 9:23:55 AM
Volatility may prevail
MARKET TREND BY KM LEE
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REVIEW: Shares on Bursa Malaysia started out slightly steadier, with the FBM Kuala Lumpur Composite Index (FBM KLCI) rising 1.07 points to 1,722.14 amid bargain hunting activity.
Sentiment was positive, but buying was mostly gathered around the blue chips and the heavyweights, buoyed by gains in the US markets.
A firmer Asian equities in the early session added to the upbeat note, but when offshore momentum fizzled out in the afternoon amid fresh concerns about a tapering of US stimulus measures, the local bourse lost its lustre owing to profit-taking selling.
Mirroring the regional pattern, the key index came off an intra-day peak of 1,732.25 to settle at 1,722.49, up 1.42 points in subdued mood on Monday.
After a short pause, overnight Wall Street drifted lower the next day amid growing geopolitical tensions, exacerbated by uncertainty over whether the US Federal Reserve would begin to withdraw stimulus next month. Elsewhere, Asian markets resumed the downward spiral on fears of US military intervention against Syria.
Against the negative backdrop, combined with the depreciation of the ringgit against the greenback, the local bourse retreated into the negative territory in a sea of red, as investors fled to the sidelines.
Blue chips topped the losers’ list, pulling the FBM KLCI down a significant 21.25 points to 1,701.24 on Tuesday.
Jitters over a possible US led military strike against Syrian President Bashar al-Assad’s forces pushed crude oil prices to a six-month high and dragged Wall Street sharply lower in overnight session.
In the Asia-Pacific region, stocks were knock down, with the Philippines market plunging as much as 6% due to capital flight.
Tracking the overseas declines, the local bourse tumbled to a low of 1,660.39, losing as much as 40.85 points, or 2.4% shortly after the opening bell.
At that moment, indicators were “screaming very oversold condition.” Shortly after, institutional funds came to the rescue and they helped lift the key index off the bottom. At the close, Bursa still was down 15.07 points to 1,686.17 in mid-week.
Thereafter, bargain hunting activity dominated the floor, as easing worries about geopolitical tension helped soothe investors. As usual, blue chips led the rebound, driving the FBM KLCI up 17.61 points to 1,703.78 on Thursday and an extra 23.80 points to1,727.58 yesterday.
Statistics: For the week, the principal index gained 6.51 points, or 0.4% to 1,727.58, compared with 1,788.24 on Aug 23. Turnover for the week amounted to 9.495 billion units worth RM12.551bil, versus 10.336 billion shares valued at RM8.973 traded a week ago.
Technical indicators: The daily slow-stochastic momentum index rose after issuing a short-term buy at the grossly oversold area in mid-week. Mirroring the trend, the 14-day relative strength index improved from a single digit reading of nine on Wednesday to close at the 40 points level.
In addition, the daily moving average convergence/divergence (MACD) histogram indicated a mild convergence pictogram, but remained in sell mode, flirting sharply below the daily signal line. Elsewhere, the weekly slow-stochastic momentum retained the sell signal but the slide appeared to have paused.
Meanwhile, the weekly MACD continued to expand negatively against the weekly signal line to stay bearish.
Outlook: Bursa suffered a steep fall, with the FBM KLCI violating the last 200-day simple moving average (SMA) and the 4½-year-old ascending line on extended correction in the first half of the week before bouncing back to settle little changed above the flat line.
The recovery from the recent lows of 1,660.39 on Wednesday that saved the market from a major breakdown appeared strong. However, nothing has changed. Though the local bourse has not turn bearish just yet, it will remain in correction mode, as long as the two falling short-term moving averages, namely the 14-day SMA and the 21-day SMA, continue to pressure the key index.
Based on the daily chart, more negative crosses were sighted, specifically the 21-day SMA slipping below the 50-day SMA and 100-day SMA, and also the 14-day SMA against the 100-day.
Theoretically, “death cross” is not a negative sign. Hence, investors are advise to exercise caution in their trading approach until clarity returns.
Technically, indicators such as the daily slow-stochastic momentum index and the 14-day RSI suggest that there is still space for more recovery in the short term, but volatility is likely to prevail, with external uncertainty weighing on the local sentiment.
Stiff resistance is expected at the 1,743 points , followed by the 1,756 points. The next upper strong barrier is seen at the 1,770 points.
Current support is pegged at the 1,700 points psychological level. Important floor is kept at the 1,665 points. A crack of the recent lows of 1,660.39 would signal a downtrend continuation, thus dragging the market into bearish mode.