Lower on bearish extended-mode

by **Cals** Sat 15 Aug 2015, 16:39

Lower on bearish extended-mode

Saturday, 15 August 2015
By: K.M. LEE

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REVIEW: Bursa Malaysia kicked off the week on a decisively soft note, with the FBM Kuala Lumpur Composite Index (FBM KLCI) gapping down a huge 10.08 points to 1,672.51, as a breakdown in the previous session, sent investors running for cover.
Blue chips bore the brunt of foreign liquidation, with the ringgit depreciating sharply against the greenback and the prevailing political uncertainty weighing on investors’ sentiment.
In the wake of a fresh bout of heavy selling, the key index came under tremendous stress to retreat steadily from an intra-day high of 1,672.57 in early deals to a low of 1,649.12 in late afternoon before trimming losses slightly in late hour to close down 28.28 points to 1,654.37, with losers thumping winner by 10:1 ratio on Monday.
Then, overnight Wall Street jumped a hefty 241.79 points to 17,615.17, lifted by energy shares and a mega corporate deal about Warren Buffett buying into Precision Castparts for US$32.3bil.
Over on the New York Mercantile Exchange, crude oil prices spiked almost 4% to US$44.96 a barrel on news that Chinese crude imports hit a record in July.
Combined the two positive catalysts together, Bursa had the right ingredients to snap the recent losing streak the next day, but there was no respite for the local bourse, as unrelenting foreign liquidation continued to dominate the floor while the ringgit sank further against the US dollar.
Meanwhile, a surprise move in China, allowing its currency to fall following a weaker-than-expected economic data helped fan selling pressure across markets in the Asia-Pacific region.
Tracking the regional declines, the local bourse sustained the downward spiral on fierce foreign selling in the core heavyweights. Elsewhere, second and lower liners also were not spared, with most retail investors fleeing to the sidelines.
In the absence of support, the FBM KLCI violated the 1,637.82-point floor, which is the 23.6% Fibonacci retracent line of the previous massive rally, to settle at 1,636.71, losing another 17.66 points in a sea of red on Tuesday.
The technical breakdown in the key index does not bode well for the already fragile market. With global sentiment deteriorating rapidly following China’s surprise 2% devaluation of the yuan the previous day, commodities tumbling and the ringgit breaching the RM4 psychological barrier against the US dollar, Bursa was set to tank deeper into the rut.
In line with expectations, the local bourse suffered another round of brutal beatings, dragging the key index to a low of 1,603.26 in the afternoon before finishing at 1,609.93, dropping 26.78 points in mid-week.
At this moment, the FBM KLCI had plunged to the worst level since Feb 21, 2013 and just when it looked defenceless and in great danger of falling below the 1,590-1,600 points immediate support line, the local funds came out to seek value buys.
A retreat in the US dollar and a bounce in the black commodity aided the local sentiment while foreign investors stepped back from selling and that has led the FBM KLCI recouping some 11.69 points to 1,621.62 on Thursday before resuming the downtrend on renewed selling, shedding 24.80 points to 1,596.82 yesterday.
Statistics: Week-on-week basis, the principal index dived 85.83 points, or 5.1% to 1,596.82 yesterday, compared with 1,682.65 on Aug 7. Total turnover stood at 10.265 billion units worth RM10.764bil, versus 7.389 billion shares valued at RM7.991bil changed hands the prior week.
Outlook: We had pointed out here about the threat of the formation of “dead cross” two weeks ago and cautioned investors that once a breakdown comes about, the consequences would be dreadful. What all of us are seeing apparently is the effects of this negative developments that was carved out on the chart recently. It was scary, with support levels taken down one by one decisively in the wake of an unusual foreign liquidation, largely triggered by continuous weakness in the ringgit against the greenback and plunging hard and soft commodity prices, exacerbated by political uncertainty on the domestic front.
The revaluation of the yuan added to the downbeat mood.
There was no respite for now, as many people opined that the local currency would depreciate further in the near term and commodity prices, especially the crude oil prices sinking deeper following a breakdown in New York on Thursday.
Given the overwhelming pessimism hurting equities, investors can expect Bursa to remain under pressure in the short term.
Technically, indicators are weak, implying that the local bourse may drift lower on bearish extended-mode this week. Hence, any relief recovery due to oversold condition is not sustainable, unless the present bearish sentiment turns around. Support is seen at the 1,590 points, followed by the 1,550-1,555-point band and the next, at the 1,525-1,527-point range. To the upside, the FBM KLCI will now be facing stiff resistance at 1,638 points.