Profit-taking caps upside potential BY K.M. LEE - FBMKLCI

by **Cals** Sat 26 Oct 2013, 20:57

Published: Saturday October 26, 2013 MYT 12:00:00 AM
Updated: Saturday October 26, 2013 MYT 12:16:19 PM
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REVIEW: Bursa Malaysia kicked off the week little changed on the negative side, with the FBM Kuala Lumpur Composite Index (FBM KLCI) easing a small 0.67 point to 1,698.92, as profit-taking activity set in following gains in the past three consecutive sessions.
Trading was cautious but once selling pressure was fully absorbed in the afternoon, the market resumed its upward thrust again.
Select blue chips led the way, lifting the key index from an intra-day low of 1,797.14 on renewed bargain hunting interest by institutional players, boosted by steadier US markets.
A combination of other positive factors, such as an acceleration in China’s economy and a better showing in regional equities and the upcoming budget, also elevated retail investors’ confidence, thus luring them into the mid-capitalisation stocks.
In an active session, the local bourse reversed early losses to settle up 3.02 points to 1,802.61 on Monday. Stocks on the domestic front extended the uptrend the following day while gains in quality issues pushed the key index to a high of 1,808.35 in early business.
Unfortunately, the momentum quickly fizzled out, with a lower Wall Street overnight weighing on the local bourse.
A mixed performance in the Asia-Pacific region, pending the release of US payrolls data for September, also was not helping.
In the absence of compelling leads, the market succumbed to pressure to slip into negative territory from mid-morning to trade within a narrow range on consolidation for the rest of the day. However, the local bourse managed to eke out a minor advance, up 0.97 point to 1,803.58, with winners and losers almost evenly matched.
The higher settlement on Tuesday was largely due to a last minute push in certain stocks ahead of the budget.
After a short pause, US stocks staged a nice recovery, with the Dow jumping 75.46 points to 15,467.66 and the S&P 500-share setting a new record high on expectations that the Federal Reserve would maintained its economic stimulus into 2014.
Though regional bourses reversed early strong gains to close easier, the local bourse ignored the move.
Core heavyweights charged forward on funds support, sending the FBM KLCI to finish at an all-time closing high of 1,814.11, up 10.53 points in mid-week.
Thereafter, persistent bargain hunting nibbling dominated the floor, driving the key index up an extra 4.82 points to 1,818.93, another new closing high on Thursday before the market snapped an eight-day winning streak, easing a minor 1.36 points to 1,817.57, as investors opted to book profit.
Statistics: For the week, the major index added 17.98 points, or 1% to 1,817.57, versus 1,799.59 on Oct 18.
Turnover for the regular week amounted to 8.599 billion units worth RM8.409bil, against 6.172 billion shares valued at RM6.707bil done during the four-day holiday-shortened previous week.
Technical indicators: The daily slow-stochastic momentum index had issued a short-term sell signal, but it could not be confirmed for now, simply because the oscillator per cent K and the oscillator per cent D were still flirting at the bullish territory.
Similarly, the 14-day relative strength index weakened slightly from a reading of 86 to close at the 74 points level.
In stark contrast, the daily moving average convergence/divergence (MACD) histogram sustained the upward expansion against the daily signal line to keep the bullish note. It had triggered a buy on Oct 16.
Weekly indicators were healthier, with the weekly slow-stochastic momentum index and the weekly MACD flashing a buy signal.
Outlook: Bursa scaled higher amid continuous bargain hunting the past week, with the FBM KLCI closing at new all-time highs for two consecutive days before retreating owing to an apparent profit-taking.
Despite the record setting, the scoreboard was not painting an overwhelmingly bullish pictogram but a cautious mood on the whole.
If the present underlying sentiment does not change for the better, we reckon the market could still chalk up gains on a snail’s pace, but a significant post-budget rally would be difficult to come by.
Based on the daily chart, the short-term uptrend still is intact, and it will remain so, as long as the FBM KLCI retains the posture above the 1,800 points level. On the opposite, if this psychological support is violated, a pullback on correction can be expected. Then the lower 1,770 points and the 1,740 points floor will be much weaker.
Technically, the improving signal from the daily and weekly MACDs suggests that the local bourse is likely to firm, but the upside may be capped by some profit-taking selling activity. The immediate upside target would be to re-test the historic apex of 1,826.22, of which a breach would send the bulls into the unknown area.