Market still in correction mode

by **Cals** Mon 27 Jan 2014, 02:07

Published: Saturday January 25, 2014 MYT 12:00:00 AM
Updated: Saturday January 25, 2014 MYT 8:17:33 AM
Market still in correction mode
BY K.M. LEE
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REVIEW: In line with our expectations, Bursa Malaysia started the week on a soggy platform, with the FBM Kuala Lumpur Composite Index (FBM KLCI) dropping a significant 4.76 points to 1,808.25 due to persistent foreign liquidation.
Blue chips were frail. Elsewhere, second and lower liners drifted lower on lack of support from retail investors.
Though the overnight Wall Street finished slightly firmer, up 41.55 points to 16,458.56 the previous Friday, it was not helping, as a mixed-to-easier performance in the Asia-Pacific region weighed on the local bourse.
Consequently, the key index succumbed under tremendous stress to retreat, touching a low of 1,801.31, but just when it appeared in danger of violating the 1,800-point psychological support, local institutional funds came to the aid and helped the market trimmed losses, but it was not strong enough to reverse the earlier trend.
At the close, the local bourse was down 5.42 points at 1,807.59 on Monday.
There was no lead from the United States the next day, as Wall Street was shut for a public holiday.
Meanwhile, Asian stocks crept higher, as worries of a slowdown in China’s economy waned and money rates eased.
Taking the cue from its regional peers, Bursa bounced back to life on renewed buying, with heavyweights leading the way amid strong support from local funds. Some cheaper stocks also jumped on the bandwagon on rotational plays.
On the back of the positive backdrop, the FBM KLCI hit a high of 1,816.94 during intra-day session before paring gains slightly to close up 7.75 points to 1,815.34 in active volumes on Tuesday.
In lacklustre trade, the key index shed 1.24 points to 1,814.10 in mid-week and an extra 5.79 points to 1,808.31 on follow-through profit-taking selling on Thursday.
And yesterday, the local bourse tracked overseas declines, losing an additional 5.74 points to 1,802.57, spooked by disappointing economic numbers out from China and weak corporate earnings in the United States.
Statistics: Week-on-week basis, the major index tumbled 10.44 points, or 0.6% to 1,802.57, against 1,813.01 on Jan 16.
Total turnover for the regular week amounted to 8.096 billion shares worth RM9.836bil, versus 6.139 billion units valued at RM6.626bil done during the three-day holiday-shortened previous week.
Technical indicators: After a brief climb to the 33% level, the oscillator per cent K reversed trend and slipped below the oscillator per cent D of the daily slow-stochastic momentum index to trigger a short-term sell yesterday. The past week witnessed the 14-day relative strength index curving down from a reading of 38 on Tuesday to end at the 28-point level.
Meanwhile, the daily moving average convergence/divergence (MACD) histogram continued to expand negatively against the daily trigger line to stay bearish. Both the lines had fallen below the zero threshold apparently and a sell signal was flashed on Jan 3.
Weekly indicators deteriorated further, with the weekly slow-stochastic momentum index sinking deeper into the bearish territory and the weekly MACD on the slide after triggering a sell a week ago.
Outlook: Bursa fell for the fourth consecutive week on extended correction due to lack of fresh catalyst at home and abroad, exacerbated by local investors taking money out of the systems for the Lunar New Year celebrations.
Based on the daily chart, the recent profit-taking selling action had resulted in the key index violating the relatively important 100-day simple moving average (SMA) during intra-week trading.
Combined with the latest “death crossing” of the 14-day SMA against the 50-day SMA, the local bourse is most likely to remain in correction mode for a while.
This may mean that the local bourse has peaked out temporarily. At best, it may trade sideways pattern until a new development appears.
Apparently, most of the technical indicators are ugly, implying more downward pressure, with most investors reluctant to take up new positions ahead of the long break due to Chinese New Year holidays.
The immediate resistance is expected at the 1,820 points level. Strong barrier can be expected at the 1,830 points, followed by the 1,850-1,852 points range. The next upper hurdle is the all-time high of 1,882.20, set on Dec 31, last year.
As for the support, a crack of the 200-day SMA of 1,780 points may drag the key index down to the 1,740 points level.