Market appears hazy in the short term

REVIEW: Overnight US markets swooned, halting a string of rally, as a disappointing data on employment revived investors' concerns about the health of the world's largest economy.

On Wall Street, the Dow slipped 62.29 points to 12,657.20 and over on the New York Mercantile Exchange, Light sweet crude plunged US$2.47 to US$96.20 a barrel in a broad-based liquidation pressure the previous Friday.

Against the negative backdrop, Bursa Malaysia started out little changed in cautious mood but the FBM Kuala Lumpur Composite Index (FBM KLCI) managed to chalk up a minor gain due to spilt-over buying in select quality issues. It had opened the week at 1,595.14, up 0.4 point and shortly after, established a fresh all-time high of 1,597.08.

However, the enthusiasm was difficult to sustain, as there was no apparent reason to bid stocks higher, especially with frail regional exchanges and current macroeconomic factors weighing on the market sentiment.

As expected, in the absence of compelling news on the horizon, the bulls abandoned an initial idea of scaling new apex and opted for correction on lack of support, settling down 6.16 points to 1,588.58 on Monday.

US stocks and crude oil suffered another beating the following day, falling a steep 151.44-point to 12,505.76 and US$1.05 a barrel to US$95.15 a barrel respectively, as lingering uncertainty over US budget talks, growing fears the eurozone debt crisis could spread to Italy and demand worries, drove investors away from risky assets.

Elsewhere, Asian equities worsened on follow-through selling, dragged by the threat of contagion from the Greek debt crisis, compounded by fears of a possible interest rates hike in China.

At home, Bursa Malaysia, which was already rattled by a weak US jobs report and slipped into correction mode a day earlier, was not spared, with the key index easing steadily from the opening bell to an intra-day low of 1,574.52 in the afternoon before trimming losses slightly in late trade to end at 1,578.10, down 10.48 points on Tuesday.

Then, after two days of declines, the local bourse showed signs of stabilising but the overall market clearly still was in consolidation mode on lack of clear lead.

Though overnight Wall Street remained downbeat, the FBM KLCI managed to eke out a small gain, rising 2.57 points to 1,580.67 in mid-week, aided by a rebound in Asian equities and crude oil prices on short-covering activity.

Thereafter, the local bourse remained in consolidation, fluctuating within a moderate range on downward bias in the absence of fresh market-stimulating leads, losing 0.83 of a point to 1,579.84 on Thursday and another 2.59 points to 1,577.25 in lacklustre trade yesterday.

Statistics: On a weekly basis, the major index declined 17.49 points, or 1.1% to 1,577.25 yesterday, against 1,594.74 on July 8.

Total turnover for the week shrank to 3.799 billion shares worth RM7.218bil, compared with 4.656 billion units valued at RM8.634bil done previously.

Technical indicators: The daily slow-stochastic momentum was on the slide and it showed no sign of a reversal yet despite nearing the oversold area.

The past week saw the 14-day relative strength index retracing rapidly from the top to end at 44 points yesterday. After flashing a sell in mid-week, the daily moving average convergence/divergence (MACD) histogram sustained the downward expansion against the daily signal line to stay bearish.

Weekly indicators were weakening, with the weekly slow-stochastic momentum index issuing an unconfirmed sell signal and the weekly MACD showing a tentative topping out pictogram.

Outlook: The FBM KLCI established a new all-time high of 1,597.08 in early trading on Monday before reversing owing to an apparent profit-taking activity, touching a low of 1,573.47 during intra-day session yesterday.

Obviously, Bursa was in correction mode the past week, as investors took the excuse of unfavourable external cues to lock in gains and with external uncertainty continuing to cloud the market, the immediate direction looks hazy. However, we remain optimistic and bullish for the longer term.

Based on the daily bar chart, the key index had retraced back to the short-term ascending line and now in a crucial situation. As such, the local bourse must rebound quickly. Otherwise, a negative breakdown will come about soon and if that happens, the market is likely to experience greater liquidation pressure this week, or until a fresh catalyst emerges.

Technically, the deteriorating reading from indicators suggest Bursa may stay in correction phase, probably within a moderate range.

A clear breakdown from the 1,575 points line may see the key index heading lower towards the 50-day simple moving average (SMA) of 1,556 points. The next downside support floor is seen at the 100-day SMA of 1,539 points.

To the upside, stiff resistance is maintained at the 1,585-1,600 points band.