Bearish mood likely to prevail

by **Cals** Mon 10 Aug 2015, 01:12

Bearish mood likely to prevail

Saturday, 8 August 2015
By: K.M. LEE

REVIEW: Taking the cue from a frail US markets overnight, Bursa Malaysia kicked off the week on a soft platform, with the FBM Kuala Lumpur Composite Index (FBM KLCI) shedding 6.15 points to 1,716.99.
Elsewhere, most Asian equities drifted lower on concerns about a slowdown in the world’s second largest economy, while the greenback continued to strengthen against the ringgit.
In the absence of support from investors, the local bourse traded lacklustrely and that was the trend from morning till the very last minute, where a sudden bout of buying in select blue chips, helped bump up the key index to a near two-month high, rising 21.05 points to close at the day’s peak of 1,744.19.
Despite the sharply higher finish, the underlying tone was clearly not inspiring, with decliners beating advancers by 465 to 324 on Monday. Hence, it is not surprising that the gains could not be extended the next day, as there were simply no new catalysts on the horizon to boost buying momentum.

[You must be registered and logged in to see this image.]
Click on image for larger version

Instead, investors took the excuse of a confluence of negative news, such as a sustained downward correction in Wall Street overnight, plunging crude oil prices and other commodities, continuous depreciation of the ringgit against the US dollar, slowing global growth and other domestic issues, to liquidate. In the wake of renewed selling, the key index surrendered almost all of the gains posted in the previous day, down 20.46 points to 1,723.73 on Tuesday.
On Wednesday, the Statistics Department said Malaysia’s exports in June 2015 grew 5% from a year ago to RM64.3bil, beating economists’ estimates of a 2.2% decline, boosted by bigger exports to China, Taiwan and the United States.
Given the positive leads and combined with crude oil prices rebounding, many people had expected Bursa to chalk up reasonable gains that day, but the local bourse was very much muted, as investors fretted about weakness in the ringgit and the Federal Reserve might raise interest rates as soon as next month.
Though the FBM KLCI advanced 1.83 points to 1,725.56, the broader market tone was mixed, with winners and losers almost equal in mid-week.
Thereafter, sellers dominated the floor once again amid growing worries that the Fed will hike rates next month after the US Institute for Supply Management reported strong services sector index while the greenback held firm against the ringgit.
In lacklustre session, the FBM KLCI tumbled a hefty 30.92 points to 1,694.64 on Thursday and an extra 11.99 points to 1,682.65 yesterday.
Statistics: On a weekly basis, the major index slumped 40.49 points, or 2.3% to 1,682.65 yesterday, against 1,723.14 on July 31.
Turnover for the week amounted to 7.389 billion units worth RM7.991bil, compared with 9.017 billion shares valued at RM9.362bil done previously.
Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were on the slide after triggering a short-term sell near the overbought area in mid-week.
Mirroring the trend, the 14-day relative strength index fell from a reading of 70 on Monday to finish the week at the 31-point level yesterday. In addition, the daily moving average convergence/divergence (MACD) histogram slipped below the daily signal line to trigger a sell yesterday. Weekly indicators were equally bad, with the slow-stochastic momentum index flashing a sell and the MACD expanding negatively against the signal line to keep the bearish note.
Outlook: A steep rebound earlier of the week due to oversold was short-lived, as a rapid fall in the ringgit against the greenback triggered a heavy foreign liquidation pressure in the blue chips, dragging Bursa back into correction mode the past week.
The prospects of the Fed adjusting interest rates upward as soon as next month and other domestic problems added to the negative tone. Going forward, the local bourse may trade range-bound to marginally firmer at best, with prevailing external and internal uncertainties clouding risky assets, unless fresh catalyst emerges.
Meanwhile, a negative breakdown was sighted following steep losses the past two days and based on the daily chart, the key index is flirting at a dangerious level apparently. Needless to say, it must stage a recovery very very quickly. Otherwise, another breakdown from the 1,671.82 points may come about soon and when that happens, it will have a dreadful impact on the market.
Elsewhere, indicators are decisively frail, implying that bearish mood is likely to prevail this week. A crack of the important floor of 1,671.82 may drag the FBM KLCI down to the 1,650-point mark. In this case, the lower support of 1,590 points-1,600 points range would become much weaker.
Stiff resistance is expected at the 1,715-point, followed by the 1,740-point, and the next, at the 1,750-point levels.