Technical recovery likely

REVIEW: Bursa Malaysia started out the week on a soft platform, with the bellwether FBM Kuala Lumpur Composite Index (FBM KLCI) shedding a significant 6.65 points, or 0.45% to 1,477.33 in initial deals.

Market sentiment was undermined by the frail US markets overnight, as fears of another recession in the US, combined with concerns related to Europe's debt crisis kept investors on the edge the previous Friday.

An unspiring performance in Asian equities also fanned the downbeat note.

In the absence of fresh buying incentives on the horizon, the local bourse retreated deeper into the red during the day, touching a low of 1,467.42 in the afternoon before paring slightly to settle at 1.472.16, down 11.82 points on Monday.

After the recent beatings, overnight Dow eked out a gain of 37 points to 10.854.65 in dull trade the next day, as market players were reluctant to take big bets without any compelling leads in sight.

Though crude oil prices jumped US$1.86 a barrel to US$84.12, trading was somewhat choppy.

Like the regional trend, the local bourse treaded waters in sluggish business throughout the morning session, tracking the cautiously firmer Wall Street and commodity prices but in an unexpected move after the midday break, the momentum picked up steam, as a better-than-expected China August purchasing managers index boosted investors' confidence.

On the back of improving market sentiment, quality issues led the rebound, driving the FBM KLCI up 10.21 points to 1,482.37 on Tuesday.

Come Wednesday, the local market continued to mend in the morning session on spilled-over buying after Wall Street rallied some 322.11 points to 11,176.76 on speculation of more easing by the Federal Reserve to stimulate the struggling US economy.

But sadly, the positive momentum swiftly petered out, as news about Moody's Investors Service downgrading Japan's government debt by one notch to AA3, prompted investors to move back to the sidelines.

In a scenario where early buyers turned net sellers, Bursa succumbed to tremendous stress to reverse direction, ending down 13.22 points to 1,469.15 that day.

Thereafter, sellers dominated the floor amid worries over the global economic outlook.

Blue chips, especially the banking stocks bore the brunt of selling, dragging the key index down 4.41 points to 1.464.74 on Thursday and an extra 19.93 points to 1,444.81 yesterday.

Statistics: Week-on-week, the major index lost 39.17 points, or 2.6% to 1,444.81 yesterday, against 1,483.98 on Aug 19.

Turnover for the regular week amounted to 4.422 billion shares worth RM9.580bil, versus 5.068 billion units valued at RM8.932bil changed hands previously.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index sustained the downward spiral during the week to settle at the 6% and 14% levels respectively yesterday.

Similarly, the 14-day relative strength index deteriorated further to end at 22 points yesterday.

Meanwhile, the daily moving average convergence/divergence (MACD) histogram resumed the negative expansion against the daily trigger line to stay bearish.

Weekly indicators were not looking well, with the weekly MACD expanding negatively against the weekly signal line and the upward trend of the weekly slow-stochastic momentum index stalling.

Outlook: Bursa retreated significantly on renewed liquidation pressure the past week, as a futile attempt to penetrate the 14-day simple moving average (SMA) brought out fresh fears of an extended correction going forward.

The other contributing factor could be the long break ahead, because most investors clear position due to prevailing uncertainty and global equities experiencing great volatility. Bursa would be shut from the afternoon session on Monday and reopens on Friday, if Hari Raya falls on Tuesday.

Anyway, we have seen a couple of breakdowns and negative crossings since the market peaked out on July 11 at an all-time high of 1,597.08. Apart from that, we now are worry of a possible “death cross” of the 50-day SMA against the 100-day SMA.

Apparently, the gap between the two averages is only less than two points. If the crossing does come about, it would surely add more weights to equities. Then, the market will find it harder to come out of the rut.

Technically, indicators are sending out oversold signal, implying the local bourse is likely to stage a relief recovery in the short-term, but the upside is likely to be limited, as other measurements remain negative.

Support is pegged at the recent lows of 1,423.47, of which a clear breakdown would prompt us to alter our outlook from “neutral” to bearish.

The lower stronger support is envisaged at the 1,396-1,400 points band, followed by the 1,350 points mark.

Resistance is expected at 1,481 points, 1,500 points, 1,530 points and the next, at 1,540-1,550 points range.