Downward bias on consolidation BY K.M. LEE

by **Cals** Mon 21 Dec 2015, 00:05

Saturday, 19 December 2015

Downward bias on consolidation

BY K.M. LEE

[You must be registered and logged in to see this image.]

REVIEW: Overnight Wall Street finished sharply lower, with the closely-followed Dow Jones Industrial Average declining 309.54 points to 17,265.21 on the previous Friday, as investors turned nervous amid growing expectations of an interest rate hike in the United States later in the week, which is the first in nearly a decade.
Over on the New York Mercantile Exchange, crude oil prices extended their downward spiral, tumbling a hefty US$1.14 a barrel to US$35.62 due to lingering worries about a prolonged glut after the International Energy Agency (IEA) warned that global oversupply of crude could worsen next year.
Against the negative backdrop, shares on Bursa Malaysia kicked off the week on a soft platform, with the FBM Kuala Lumpur Composite Index (FBM KLCI) slumping a significant 10.82 points to 1,629.32 in initial trade, extending the four-day losses on extended liquidation pressure.

An uninspiring performance across the Asia-Pacific region and the weaker ringgit against the greenback added to the downbeat mood.
Given the dearth of support from investors, the local bourse shed 10.18 points to 1,629.96 in a sea of red, led by losses in the blue chips on foreign selling while the scoreboard showed decliners beat advancers by 782 to 177 on Monday.
Nevertheless, US markets changed for the better the next day, which witnessed the Dow rebounding 103.29 points to 17,368.50 on bargain hunting in energy shares and crude oil price rising 69 cents to US$36.31 on short-covering due to very oversold condition.
Apparently, many people had expected stocks in the Asia-Pacific region to track US gains, but in a surprising move, they turned mixed, with investors adopting the “wait-and-see” attitute before a US Federal Reserve meeting at which officials will decide whether to increase interest rates.
On the domestic front, the local bourse had a muted response, mirroring the regional trend although the ringgit steadied against the greenback.
The underlying tone of the market was pretty cautious while investors were almost evenly divided, with the scorecard indicating 387 winners, 386 losers and 390 counters traded unchanged at the closing bell although the key index shed an extra 7.12 points to 1,622.84 on Tuesday.
Risky assets in the United States sustained the upward thrust, with the Dow jumping another 145.41 points to 17,524.91 and crude oil prices spiking from a multi-year low, up US$1.04 a barrel to US$37.35 on follow-through interest, as investors increased bets that the Fed will hike rates after its two-day meeting.
Taking the positive leads from the United States, markets in the region sprang back to life, with Nikkei 225-share average topping the list.
In line with expectations, Bursa was not left out this time round and gains in the blue chips bid the key index up 11.29 points to 1,634.13 in mid-week, snapping a six-day losing streak.
It jumped another 22.39 points to 1,656.52 on Thursday after the Fed ended months of uncertainty by hiking interest rates before retreating 12.62 points to 1,643.90 owing to an apparent profit-taking selling yesterday.
Statistics: For the week, the principal index rebounded 3.76 points, or 0.2% to 1,643.90 yesterday, against 1,640.14 at the close on Dec 11.
Weekly turnover stood at 8.376 billion shares amounted to RM9.427bil, compared with 8.901 billion units worth RM9.072 changed hands the prior week.
Outlook: As expected, the local bourse posted minor gains, with the FBM KLCI snapping a two-week losing streak in the wake of bargain hunting after uncertainty about the US central banks’s policy was removed following a rate hike.
The upward adjust in the interest rates, also the first in nearly a decade, although modest, signalled broader confidence in the world’s largest economy.
It bodes well for the United States, but the same cannot be said for the Malaysian economy, as the Fed’s move is supportive of the greenback and pressuring commodities prices, which were are very sensitive about and should that happens, investors can expect a rough ride ahead.
Based on the daily chart, Bursa remains in correction mode despite a steadier close week-on-week basis, and it will stay that way, as long as the key index continues to flirt below the short-term bearish descending line of 1,677 points, coincidentally, also the 50-day simple moving average (SMA) line.
The key index is expected to face greater resistance at the 1,690-1,700 points band and the next, either at the 200-day SMA of 1,717.55 or the recent high of 1.727.41 points.
Technically, indicators are very much mixed. While the daily MACD improves slightly, the weekly MACD is weakening.
Given the tricky situation, Bursa may drift sideways to marginally lower on consolidation until a clearer picture emerges.
Initial support is maintained at the 1,590-1,600 points range. A slip below the lower support of 1,568 points may see the August’s lows of 1,503.68 points becoming vulnerable.