Oversold recovery

by **Cals** Sun 02 Aug 2015, 03:47

Oversold recovery

Saturday, 1 August 2015
By: K.M. LEE

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REVIEW: Overnight Wall Street suffered big losses for the fourth consecutive session the previous Friday, as investors turned cautious ahead of the Federal Reserve meeting while a poorer-than-expected economic data out from China and the eurozone stoked concerns about slowing global growth.
Over on the New York Mercantile Exchange, crude oil prices sank deeper into the red, shedding 31 cents to US$48.14 per barrel amid worries that a rise in the number of US drilling rigs would add more pressure on the black commodity, which was already in the bearish territory.
Against the overwhelming bearish backdrop, Bursa Malaysia started the week on a decisively frail note, with the FBM Kuala Lumpur Composite Index (FBM KLCI) dropping a significant 9.79 points to 1,719.97.
As usual, blue chips topped the losers list. Though there was about of buying from the local funds, providing support, it was not good enough to offset foreign selling in this basket of quality stocks.
Elsewhere, most second and lower liners also dropped, as retail players stayed on the sidelines, adopting a cautious stance.
Adding to the downbeat note, major regional markets were sharply lower and the ringgit depreciated against the greenback.
Given the limited support, the key index lost 11 points to 1,709.76 in lacklustre mood on Monday.
There was no respite for risky assets the next day, as investors continued to fret about the 1,500 counters hitting limit down in the Chinese market, knocking the Shanghai Composite Index lower by a hefty 8.5% in a single day, the biggest rout in eight years.
With the closely-followed Wall Street extending the triple-digit declines in overnight session, commodity prices plunging and the prevailing domestic matters weighing on the local sentiment, there were simply no incentives for the investors to nibble.
In another downbeat day, the local bourse slumped an extra 10.06 points to 1,699.70 on Tuesday.
Come Wednesday, Wall Street showed signs of stabilising, with the Dow bouncing back strongly, taking comfort from earnings and merger news while crude oil prices steadied, as a drop in US stockpiles offset worries over supply gut.
Riding on the US strength, Bursa attempted to rebound, but the mixed performance in Asian markets were not helpful, and because of that, the local bourse turned range-bound, ending 0.71 of a point easier to 1,698.99.
In spite of the negative close, the overall breadth was quite inspiring, with winners beating decliners by 444 to 371 in mid-week.
Thereafter, bargain hunting activity dominated the floor, as overseas sentiment improved.
Taking the cue from offshore peers, blue chips finally staged a relief rebound, up 0.93 points to 1,699.92 on Thursday and added an additional 23.22 points to 1,723.14 yesterday.

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Statistics: For the week, the principal index eked out a small plus note, up 2.38 points, or 0.1% to 1,723.14 yesterday, compared with 1,720.76 on July 24.
Weekly turnover stood at 9.017 billion units valued at RM9.362bil, against 8.355 billion shares worth RM7.934bil changed hands the prior week.
Technical indicators: The daily slow-stochastic momentum index continued to improve after flashing a short-term buy deep in the oversold area on Thursday.
Likewise, the 14-day relative strength index firmed from a reading of 30 in mid-week to close at the 47 points level yesterday.
Though the daily moving average convergence/divergence (MACD) histogram retained the sell call, the downward momentum appeared to have paused.
Unlike the daily peers, weekly indicators were little changed, with the slow-stochastic momentum index keeping the buy call and the MACD sustaining declines against the signal line.
Outlook: A late round of bidding in the blue chips helped Bursa reverse early losses to post a mild gain the past week.
In spite of that, nothing has changed and with the Chinese market turning volatile again, we would like to caution investors that the local market had formed a “dead cross” recently.
This is not a good sign but a negative development and investors should take note that “dead cross” is relatively reliable on the technical perspective.
Pivotal support is pegged at the recent lows of 1,685.03. If this floor is violated and should the key index moves lower after that and subsequently, breakdown from the 1,671.82-point level, the consequences would be dreadful. If that happens, it will prompt us to press the exit button.
Apparently, the daily indicators suggest more relief recovery in the short-term, but the underlying tone simply does not support a rally.
On the back of the mixed reading, Bursa is likely to be range-bound, but with a positive bias on oversold rebound this week.
The immediate upside potential is likely to be capped at the 1,738-1,740-point band or the 1,750-point barrier.
The next upper hurdle is resting at the 1,770 points, followed by the 1,780-1,785-point range.