Correction mode to continue BY K.M. LEE

by **Cals** Mon 02 Nov 2015, 03:55

Correction mode to continue

BY K.M. LEE

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REVIEW: Taking the cue from a steadier US equities, Bursa Malaysia’s benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) started out the week on the positive side, rising 4.37 points to 1,715.30 amid bargain hunting nibbling.
However, the momentum could not be stretched, as profit-taking selling kicked in shortly despite regional markets putting up a fairly good show, because the local investors fretted about a slowdown in China after the world’s second largest economy cut rates for the fourth time this year.
In the wake of profit-taking selling, the key index succumbed to pressure to retreat gradually in the morning to an intra-day low of 1,703.09 in the afternoon before finishing down 4.14 points to 1,706.79 on Monday.
After a strong rally, Wall Street snapped its two-day winning streak due to soft US housing data while investors turned cautious ahead of the Federal Reserve policy meeting.
Elsewhere in the Asia-Pacific region, stocks outside China and Hong Kong drifted lower on worries about waning demand in China and Europe.
Given the dearth of fresh market-stimulating leads on the horizon, the local bourse continued to consolidate the next day, opening below the immediate 14-day simple moving average (SMA) and moved deeper into the red during the day to settle below the 1,700-point psychological level, shedding 9.84 points to 1,696.95 on Tuesday.
Theoretically, the FBM KLCI’s violation of the immediate moving average line and the negative breakdown from the 1,700-point level spelt more downward momentum for the local market the next day.
With Wall Street falling overnight, jittery local investors fled to the sidelines.
An uninspiring regional markets and a prolonged downtrend in crude oil prices also were not helping.
In another sluggish session, the key index sank an additional 10.44 points to 1,686.51 in mid-week.
Thereafter, sellers dominated the floor, tracking the Asian peers’ performance, as regional investors turned cautious after the Fed renewed market expectations that it might be on track to increase rates before the year end, ignoring Wall Street sharply steadier close overnight.
As usual, blue chips bore the brunt of foreign liquidation, pulling the FBM KLCI 19.53 points lower to 1.666.98 on Thursday, thus resulting a double breakdowns, from the 21-day simple moving average and the short-term ascending line.
And yesterday, the local bourse eased an extra 1.27 points to 1,665.71 on follow-through selling, in line with regional losses.
Statistics: On a Friday-to-Friday basis, the principal index tumbled 45.22 points, or 2.6% to 1,665.71 yesterday, versus 1,710.93 at the close on Oct 23.
Total turnover for the week amounted to 10.241 billion units worth RM10.06bil, against 11.94 billion shares worth RM10.133bil changed hands the prior week.
Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index had reached the oversold area, but they showed no sign of reversing up just yet.
The past week witnessed the 14-day relative strength index falling to a low of 29 on Thursday before ticking up slightly to close at the 30-point level yesterday.
Meanwhile, the daily moving average convergence/divergence (MACD) histogram continued to expand negatively against the daily signal line to stay bearish. It had issued a sell on Oct 27.
Weekly indicators were weakening, with the slow-stochastic momentum index flashing an unconfirmed sell signal at the overbought area and the upward momentum of the MACD decelerating significantly.
Outlook: The local bourse weakened, with the FBM KLCI suffering straight losses throughout the week on correction due to foreign selling in the blue chips.
Apparently, their actions had dragged the key index below the 14-day SMA, 21-day SMA and the 100-day SMA but what is more worrying is the index had also violated the short-term ascending line.
Theoretically, the multiple breakdowns on the chart suggest that the two-month-old rally from a low of 1,503.68 on Aug 25 to a high of 1,727.41 on Oct 19, has ended.
Going forward, Bursa is likely to fall on extended correction process, as investors fret about the prospects of the Fed hiking interest rates amid the backdrop of slowing growth in the world’s two largest economies, exacerbated by lower commodity prices while the US dollar stood tall against the ringgit.
Technically, indicators are either on the slide or deteriorating, implying sideways trading at best for the market, if not declining further on extended correction this week, unless fresh catalyst emerges.
Current support is resting at the 1,640 points, of which a crack will see the lower floor of 1,590-1,600 points and the 1,567-1,570 points band becoming vulnerable.
To the upside, the FBM KLCI will now face significant resistance at the 1,690-1,700 points and especially strong at the upper hurdle of 1,738-1,740 points range.