Outcome of EU summit to set direction

REVIEW: Shares on Bursa Malaysia kicked off the week little changed above the flat line, with the benchmark FBM Kuala Lumpur Composite Index rising 0.71 of a point to 1,489.73, extending the previous week’s advances on follow-through support.

However, the matching of business done was sluggish somewhat, as a marginally easier overnight Wall Street, falling 0.61 point to 12,019.42 despite a sharp drop in the US unemployment rate, prompted investors to exercise caution in their trading approach.

Though rising tensions between western governments and Iran, the world’s fifth biggest oil exporter, have kept oil prices upbeat, it was not helping the local sentiment.

Meanwhile, stocks in the Asia-Pacific region turned choppy on profit-taking activity following the recent steep rally and ahead of euro zone summit later of the week.

In the absence of fresh leads on the horizon to boost buying momentum, the local bourse subsequently turned sideways, fluctuating between an intra-day high and low of 1,492.71 and 1,487.36 respectively, a pretty tight 5.35 points before ending at 1,489.95, up 0.93 point on Monday.

After a short breather, Wall Street resumed the upward thrust, but the major index came of an earlier 167-point rise to settle up 78.41 points to 12,097.83 due to late profit-taking selling. Elsewhere, crude oil prices added three cents to US$100.99 a barrel.

Apparently, the rebound in US markets overnight gave investors a ray of hope of a steadier trend the next day, but in an unprecedented move, Asian stocks slumped between 0.3% and 1.4% on renewed liquidation amid worries about the European debt crisis after Standard & Poor’s warned it may cut long-term sovereign ratings on the 15 euro zone countries.

In the wake of external uncertainty, Bursa Malaysia succumbed to tremendous stress to retreat, shedding 9.03 points to 1,480.92 on Tuesday, tracking the regional peers.

Thereafter, sellers dominated the floor, with more investors moving to the sidelines and it was clearly displayed on the chart, which saw the key index eking out a minor gain of 2.07 points to 1,482.99 solely due to a last minute bid in select quality issues on Wednesday before heading south again, easing 10.07 points to 1,472.92 on Thursday and an additional 12.79 points to 1,460.13 yesterday, as doubts surfaced that a lasting solution to the two-year-old debt crisis would be reached.

Statistics: Week-on-week, the principal index sagged 28.89 points, or 1.9% to 1,460.13 yesterday, versus 1,489.02 at the close on Dec 2.

Total turnover for the regular week stood at 9.598 billion units valued at RM6.641bil, against 6.210 billion shares worth RM6.738bil traded during the holiday-shortened previous week.

Technical indicators: After flashing a short-term sell at the top on Monday, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index weakened further to end at the 17% and 37% levels respectively yesterday.

Likewise, the 14-day relative strength index pulled back from a reading of 68 on Monday to settle at 41 points yesterday.

Meanwhile, the daily moving average convergence/divergence (MACD) histogram had indicated a bearish divergence signal and in danger of triggering a sell.

Weekly measurements were unclear, with the weekly slow-stochastic momentum index resuming the downward spiral and the weekly MACD keeping the buy signal.

Outlook: Bursa Malaysia weakened considerably the past week in the wake of fresh selling pressure, pulling the key index to a low of 1,456.71 during intra-day session yesterday.

Based on the daily bar chart, a futile attempt to penetrate the important 200-day simple moving average (SMA) early of the month, combined with unfavourable news filtering out from the Euro zone had prompted the bulls to abandon the idea of scaling higher.

And with the FBM KLCI slipping below the 100-day SMA, 14-day SMA and the 21-day SMA in the latest move, the local bourse is now in great danger of making more downward adjustments going forward. Hence, only a positive outcome of a European Union summit meeting that meets investors’ expectation could keep the market staying afloat, as well as the prospect of a year-end rally alive.

Technically, indicators are deteriorating, implying the local bourse is likely to extend the correction process, unless fresh buying momentum emerges.

A slip below the 50-day SMA of 1,447.38 may drag the key index to the 1,424.19 level, of which a clear breakdown will signal an end to the recent rally. In this case, the lower support floors of 1,400 points, the 1,370 points, the 1,350-1,353 points band, the 1,340 points and the base of 1,310.53 would be vulnerable.

To the upside, a successful breakout of the 200-day SMA of 1,503 will see the market turning decisively bullish, thus opening the doors for a re-test of the historical peak of 1,597.08, if not propelling the key index into the unknown territory.