Range-bound in quiet trading by k.m.lee

by **Cals** Sat 02 Jul 2016, 22:08

Saturday, 2 July 2016

Range-bound in quiet trading

by k.m.lee

REVIEW: US investors dumped their risky assets the previous Friday, as an earlier bet that Britain will “remain” in the European Union, went the opposite way at the final tally.

Post-Brexit panic liquidation dragged the Dow Jones Industrial Average down a hefty 611.21 points to 17,399.86 while Wall Street suffered its biggest selloff in 10 months.
Over on the New York Mercantile Exchange, crude oil prices plunged a hefty US$2.47, or 5% to US$47.64 per barrel, tracking equities.
Against the negative overseas backdrop, Bursa Malaysia kicked off the week on a soft note, with the FBM KLCI slumping a significant 6.36 points to 1,627.69, extending the previous session’s losses amid follow-through liquidation pressure.

Blue chips led declines in a sea of red and very quickly, the key index fell to a low of 1,618.25.
Sentiment was decisively frail at that moment and the market was in great danger of suffering more beatings as trading progressed.
But that was not the story.

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When some key markets in the region, like China and Japan reversed early losses and later moved back into the positive territory, the local bourse showed signs of stabilising and bounced off the day’s low on renewed bargain hunting interest.
However, it was not good enough to send the key index above waters and at the closing bell, the local market still lost 4.53 points to 1,629.52 on Monday.
Overnight Wall Street and crude oil prices bled for the second straight day, losing 260.51 points to 17,140.24 and US$1.31 to US$46.33 a barrel respectively, as Britain’s shocking vote to leave the EU, an unprecedented move, continued to roil risky assets.
As expected, Asian stocks resumed their losses in early business on extended selling, but they soon turned higher, as investors scooped up the recent beaten down equities on renewed optimism after US futures rebounded, indicating a steadier cash market.
The speculation of a fresh round of stimulus measures to mitigate the effects of the “Brexit” vote fallout, also helped fan buying momentum.
Mirroring the reverseal in regional trend, the FBM KLCI crawled bach an intra-day low of 1,620.94 to settle up 4.52 points to 1,634.04 on Tuesday, snapping a two-day loss.
Thereafter, bargain hunting activity dominated the floor, as overseas sentiment returned to calm, underpinned further by a rally in US equities and crude oil prices.
Blue chips led the way, propelling the key index up 8.17 points to 1,642.21 in mid-week.
In line with global recovery, the local bourse sustained the upward thrust, gaining an extra 11.87 points to 1,654.08 amid continuous nibbling in the quality issues on Thursday.
After three days of gains, Bursa Malaysia finally retreated, as investors book profit and losses in select blue chips dragged the key index down 7.86 points to 1,646.22 yesterday.
Statistics: On a weekly basis, the major index advanced 12.17 points, or 0.7% to 1,646.22 yesterday, compared with 1,634.05 on June 24.
Total turnover for the regular week amounted to 6.678 billion units worth RM7.586bil, against 5.928 billion shares valued at RM6.659bil changed hands during the four-day holiday-shortened previous week.
Outlook: Bursa Malaysia tracked higher, with the FBM KLCI posting gains for second consecutive week on extended buying interest, while global equities recouped their steep losses following the UK “Brexit” vote.
The change in the market direction caught many people by surprise, as investors had betted for a “Remain” vote and not the “Brexit” outcome.
Some attributed the rapid recovery on optimism central banks around the world, including the Bank of England will come up with fresh stimulus measures to cushion the impact of any fallout and some attributed to half-year “window dressing” activity.
Whatever the reason, investors are advised to stay vigilant, as the real impact from “Brexit” may not be reflected just yet.
Anyway, the FBM KLCI has returned to the existing “symmetrical triangle” formation.
This may mean that the Key index’s recent violation of the rising trend line was a fake breakdown and with global sentiment staying positive and risks appetite growing, investors can expect Bursa Malaysia to sustain the upward thrust in the near-term.
However, based on the daily chart, the local bourse will remain in consolidation mode, as long as the FBM KLCI is flirting inside the existing “symmetrical triangle” pattern.
Initial resistance is expected at 1,665 points and 1,671 points, which is the 200-day and 100-day simple moving average respectively. A clear breakout of the descending trend line, resting at the 1,700-point level would see the bulls becoming more aggrestive, en route to the upper barrier of 1,730 points.
The immediate support is anticipated at the 1,634 points and the lower 1,600-point psychological level will act as a crucial floor.
Technically, the weekly moving average convergence/divergence (MACD) histogram is improving while the weekly MACD and the weekly slow-stochastic momentum index are rising steadily.
However, the daily slow-stochastic momentum index and the 14-day relative strength index are painting a growing overbought condition.
Given the mixed to slightly positive reading, the local bourse may trade range-bound in quite trading due to Hari Raya holidays this week.