KLCI week ahead KLCI to consolidate within a tight 1880-1890 range

by **Cals** Mon 14 Jul 2014, 02:53

KLCI week ahead KLCI to consolidate within a tight 1880-1890 range

Business & Markets 2014

Written by Surin Murugiah of theedgemalaysia.com

Friday, 11 July 2014 19:00

KUALA LUMPUR (July 11): The FBM KLCI is expected to consolidate within a tight 1880-1890 range before retesting 1900 psychological level, in the wake of soft economic data, slow earning season, rising Middle East tension and Portuguese bank debt concerns.

Affin IB vice president and head of retail research Dr Nazri Khan said the news on Gaza tension and the interest rate default of Portugal Bank would serve as an excuse for investors to book profits on what has been a long rally in global stocks and bonds (year-to-date MSCI All World gains 8.1% while Barclays 20 Years Treasury Fund scores 9.8%).

He said while the fate of a relatively minor bank in Europe would not normally have little effect on Wall Street, it was enough to make investors reconsider the market's high valuations as the earnings season gets into full swing.

Nazri, who is also the president of the Malaysian Association of Technical Analysts (MATA) said that on the external front, the bear camp gets the early nod as the global stock market mood was less buoyant, with Dow Jones Industrial Average slipped and failed to regain the 17,000 level.

He said there was a potential for further downside action over the near term, as the trade positions for the follow through from the support breakdown.

“Nevertheless, last week’s optimism sparked by solid global purchasing managers’ indices, strong US payrolls and continued support from the Fed and European Central Bank however should return,” he said.

Nazri said that on the domestic front, the merger of three big banks (CIMB, RHB and MBSB) should kick-start a new government reforms and liberalisation wave to boost investor confidence.

He said on the technical front, the local benchmark appears to be forming a bullish cup and handle pattern, with a slow grind higher on lower volume.

“Weakness below the bottom end of this range at 1,860 would favour a larger decline targeting 1,830. The near term bias in the local index clearly goes to the bull camp, with resistance coming in at 1,890 and ultimately 1,900 psychological level.

Nazri said daily stochastics has turned lower suggesting a decelerating upside momentum.

He said the market's close above the 20, 50 and 200-day moving average is an indication the trend still remains positive across all time frame.

“On July 8, the FBM KLCI had its best session in history, rebounding to 1896.23 level.

“We believe the local index should carve out another quick tight consolidation of 1880-1890 trading range over the next few days, before making another try to test the psychological 1900 level,” he said.

Nazri said some of the local news that may be significant for short term investors include RHB-CIMB-MBSB seek to merge into the largest and most profitable Malaysian banking group, Yinson getting offer to take full Norwegian oil vessel ownership, Century Logistics to announce corporate exercises to enhance trading liquidity through a proposed bonus issue cum share split facilities and Genting to complete the disposal of 51.0% stake in China Meizhou Wan power plant.

“Overall, despite the external blips, we expect the FBM KLCI to remain well underpinned at 1880 support level (by the global liquidity and defensive appeal of Bursa) and should eventually march higher towards the psychological level of 1900.

“As for stock picks, we are in favour of buy-on-dips the overbought local momentum stocks from Oil Gas & Properties sector such as S P Setia, Yinson, KNM, Muhibah, Faber, KUB, Prestariang, Tambun, E&O, Coastal Contracts , TA and YNH Properties,” he said.