Stay cautious Saturday, 15 November 2014 By: K.M.LEE

by **Cals** Sun 16 Nov 2014, 23:49

Stay cautious

Saturday, 15 November 2014
By: K.M.LEE
REVIEW: Shares on Bursa Malaysia started out the week slightly steadier, with the FBM Kuala Lumpur Composite Index (FBM KLCI) adding 0.28 point to 1,824.47, as investors indulged in bargain hunting following a week-long correction process.
Riding on the offshore strength, blue chips led the way on foreign funds buying and very quickly, propelling the key index to as high as 1,831.82 before profit-taking capped the upside potential.
At the final bell, the local bourse gained 3.74 points to 1,827.93, snapping a five-day losing streak but the overall breadth was uninspiring, with decliners beating advancers by 482 to 348. This is because most of the second and lower liners traded flat to marginally lower on consolidation on Monday.
Bursa gained more grounds in early hours the next day amid follow-through support after Wall Street set another record – closing highs on news that global investors would be allowed to buy Chinese stocks from Hong Kong starting Nov 17.
However, the momentum could not be stretched, as the Index’s futile attempt to penetrate the 14-day simple moving average (SMA) prompted institutional players to quickly book gains.
A mixed performance in the regional markets also was not supportive of the local bourse.
Consequently, the FBM KLCI reversed early gains to close down 2.82 points to 1,825.11 on Tuesday.
Thereafter, profit-taking dominated the floor, as the small movement in overseas peers reminded the local boys to stay cautious.
In lacklustre trade, the key index violated the 21-day SMA to end at the day’s low of 1,816.24, slumping 8.87 points in mid-week and on the technical pespective, setting the stage for more downward pressure the following day.
As expected, the local bourse sustained the downward momentum but losses were marginal, with the FBM KLCI dropping 0.43 of point to 1,815.81 amid dearth of compelling leads on the horizon on Thursday.
And yesterday, Bursa extended the downtrend on follow-through liquidation pressure and losses in the blue chips dragged the key index down 2,02 points to 1,813.79, although the Dow scaled another new peak in overnight session.
Statistics: For the week, the major index declined 10.4 points, or 0.6% to 1,813.79 yesterday, against 1,824.19 at the close on Nov 7.
Weekly turnover amounted to 9.952 billion units worth RM8.985bil, versus 11.201 billion shares valued at RM10.532bil changed hands a week ago.
Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index showed no sign of curving up despite reaching the grossly oversold area several days ago. It had triggered a short-term sell at the top late last month.
Meanwhile, the 14-day relative strength index weakened further to finish at the 32-point level yesterday, down from a reading of 76 on Oct 31.
In addition, the daily moving average convergence/divergence (MACD) histogram tripped below the daily signal line to trigger a sell in mid-week.
Weekly indicators were deteriorating, with the slow-stochastic momentum index showing a tentative topping out sign at the 75% level and the MACD resuming the downward expansion against the trigger line.
Outlook: There was no respite for the local bourse even though Wall Street raced to record levels almost on a daily basis, as continuous profit-taking activity, especially in the blue chips weighed on the broader market sentiment.
It was another dissapointing week, as the market fell for no apparent reason, implying the underlying tone of the local bourse is pretty frail and with the China’s data showing the world’s second largest economy was losing steam in October, there is a high possibility Bursa may be under pressure in the near term due to lack of buying incentives.
Based on the daily chart, the FBM KLCI had fallen back to below all the moving averages on our screen. With the 100-day SMA in great danger of going under the 200-day SMA, investors are advised to adopt a cautious stance in their trading approach, as we are particularly disturbed with the spectre of “death cross” of these two important lines, because when it happens, such an event usually spells out a long bear trend for the market.
Technically, the daily and weekly MACDs are bearish but the very oversold condition of the daily slow-stochastic momentum index offers a ray of hope of a relief rebound this week.
A decisive breach of the heavy barrier of 1,860 points would see the broad market sentiment changing for the better, enroute to challenge the historical peak of 1,896.23 or the 1,900-point psychological level.
As for the downside, a crack of the 1,800-point floor is likely to lead to a re-test of the recent lows of 1,766.22, of which a breakdown may open the doors for a prolong downswing.