Persistent downside risks

by **Cals** Sun 23 Aug 2015, 23:05

Persistent downside risks

Saturday, 22 August 2015
By: K.M. LEE

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REVIEW: Bursa Malaysia had attempted to rebound after a dismal start to the new week, taking comfort from a firmer US markets.
However, it was a futile move, as continuous weakness in the ringgit against the greenback, combined with concerns about a slowdown in China, devaluation of the yuan and nagging domestic issues, depressed the overall market sentiment and stoked further selling.
Most second and lower liners drifted lower while blue chips took a beating.
In a bad day like this, the key index tumbled a hefty 24.28 points to 1,572.54, with losers beating winners by 836 to 149 on Monday.
The local bourse never gave up, but made another effort to stabilise the next day and succeeded after overnight Wall Street chalked up gains for the third straight session. Though there was a bout of buying, supported by a steadier ringgit, investors were not chasing after rising stocks, with plunging crude oil prices, lower Asian equities and the deadly bombing in Bangkok, weighing on the local sentiment.
In cautious session, the key index recovered 7.06 points to 1,579.60 on Tuesday.
While the ringgit turned sideways on consolidation, crude oil prices rebounded and Thai stocks recouped some losses from the previous day’s selloff, the local investors took advantage of the better sentiment to extend their bargain hunting activity.
Besides the gains in select blue chips, most second and lower liners also were actively traded.
Riding on the positive underlying tone, the FBM KLCI added an additional 2.84 points to 1,582.44 in mid-week.
Sadly, after two days of climbing, profit-taking selling was quick to emerge, as a sharp drop in overnight Dow and crude oil prices, spooked investors, although the ringgit was still very much trapped within a narrow range on extended consolidation.
Uncertainty about when the Federal Reserve would raise interest rates and an uninspiring performance in the regional markets added to the downbeat mood.
In cautious session, the local bourse shed 5.03 points to 1,577.41 on Thursday and losing an extra 2.74 points to 1,574.67 yesterday.
Statistics: On a weekly basis, the major index lost 22.15 points, or 1.4% to 1,574.67 yesterday, against 1,596.82 on Aug 14.
Weekly turnover amounted to 9.786 billion units worth RM9.736bil, compared with 10.265 billion shares valued at RM10.764bil done previously.
Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were inching up gradually from the bottom. It had triggered a short-term buy deep in the oversold area on Aug 13. In stark contrast, the 14-day relative strength retained the posture below the 30-point level on bearish extended-mode.
Meanwhile, the daily moving average convergence/divergence (MACD) histogram expanded negatively against the daily signal line to keep the bearish note, but the downward pressure appeared to have eased marginally. Weekly indicators were ugly, with the slow-stochastic momentum index sliding and the MACD flirting sharply below the trigger line.
Outlook: The FBM KLCI touched a low of 1,557.01 during intra-day session yesterday, the worst level since June 2012. But unlike the previous week’s market carnage, the downward momentum has decelerated significantly in the past week, as sporadic buying in select blue chips somewhat helped cushion the slide.
Based on the daily chart, Bursa had attempted to stabilise above the 1,550-1,555 points band after the recent steep fall, but it is not likely to succeed while offshore sentiment deteriorates rapidly.
Global equities were plunging on concerns that a slowdown in China would hit other countries and crude oil prices diving due to growing US inventories.
Meanwhile, the prospect of the Fed hiking interest rates as soon as next month, continues to cloud the market place.
The mood of investors already had turned gloomy and darkened further by the speedy depreciation of the ringgit against the greenback, as well as political uncertainty on the home front, the local bourse is in great danger of sinking deeper due to limited support from market makers.
A crack of the 1,555-1,555-point range may drag the key index down to the 1,527 points. When that happens, the lower 1,500-point psychological level and the 38.2% Fibonacci retracement of 1,478 points will become vulnerable.
Other than the daily slow-stochastic momentum index offering a ray of hopes of a technical rebound, the rest of the indicators are bearish, implying that should there be a relief recovery, it is not sustainable, unless global sentiment changes for the better.
Initial resistance is expected at the 1,590-1,600-point range, followed by the 14-day SMA of 1,630 points and the next, at the 1,638 points.
The upper 21-day SMA will now seen as a heavy resistance.