Events abroad to provide leads on Bursa

Construction and conglomerate stocks such as MRCB, UEM Land, DRB-HICOM and Muhibbah Engineering are likely to bounce back after recent losses made them grossly oversold, says a head of research


The blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) bounced back to mirror a V-shape rebound last week, catching a lot of investors by surprise given the commotion during the Bersih 3.0 rally over the weekend that should have seen an extended correction in the local market.

As it turned out, the more positive external economic environment managed to offset local events as improving manufacturing numbers from the US to China and South Korea and a larger-than-expected Australian interest rate cut boosted optimism about the global economy.

The FBM KLCI reversed up by 23.24 points, or a similar 1.5 per cent loss the previous week to end last week at 1,591.04, as CIMB (+21 sen), Genting Bhd (+32 sen), Tenaga (+17 sen), AirAsia (+27 sen) and Maybank (+7 sen) contributing half of the index's gain.

Average daily traded volume and value dwindled to 1.23 billion shares worth RM1.4 billion, compared with 1.46 billion shares worth RM1.5 billion in the previous week, as trading momentum turned cautious given the unexpectedly strong rebound post-Bersih 3.0.

The subdued performance of Wall Street last Friday following the weaker-than-expected non-farm payrolls data may exert downside pressure on the FBM KLCI after the benchmark index's stronger-than-expected surge last week. The job number that fell short of expectations by 45,000 added to earlier woes of slowing US services sector and rising unemployment in the euro region.

The outcome of elections in France and Greece over the weekend will compound the downside if there is any change in status quo. As highlighted last week, the victory of left-of-centre challenger Francois Hollande will be a dampener on ongoing efforts to fight the European debt crisis and change France's foreign policy, which will not be viewed favourably by the US.

In Greece, the outcome of the parliamentary election is expected to be more fragmented than ever before such that any new coalition government is not expected to last. Anticipations are running high for another election in June or September, which will definitely throw a wet blanket on agreed austerity measures and place the agreed aid payments in a limbo.

So, monitor closely these external political developments as the socio-economic impact will be great on the European region as a whole.

A change in Europe could lead to a correction in the FBM KLCI. Besides, the key index could be subjected some downside pressure from plantation stocks as the market expectation is for a stronger palm oil output in April. The official data that will be released this Thursday is expected to show a continuous uptick for a second month that would ease the strain on prices temporarily.

Investors are advised to remain defensive and maintain a trading mentality to sell-on-strength and buy-on-weakness until we see healthy correction post-dissolution of parliament, believed to be just around the corner.

Locally, trade numbers for March will be released on Wednesday while Bank Negara Malaysia's stance on the Overnight Policy Rate will be known on Friday. Although March has typically been a strong period for trade, exports performance for the month is not expected to match February's double-digit growth of 14.5 per cent .

Consensus figure is pointing towards a seven per cent year-on-year (YoY) expansion on a much higher base of RM61.9 billion a year ago.

No unpleasant surprises are expected on the back of strong exports of electricals and electronics, palm oil, chemical and petroleum related products. With growth drivers still intact and tame inflationary pressures, the central bank is expected to keep its rates intact this month.

Technical outlook

In FBM KLCI futures, new spot month May traded on Bursa Malaysia Derivatives rose 1.02 per cent to close at 1,583, deteriorating to a 8.04-point discount to the cash index, compared to the 0.8-point discount the previous week, as traders reinstated short positions given the artificial spike on the cash index late in Friday session.

Shares on Bursa Malaysia staged a rebound on Monday, after investors returned to bargain hunt following the previous Friday's selloff and as Asian stocks rose on speculation Australia would cut interest rates, corporate earnings beat estimates and South Korean manufacturing confidence improved.

The index rose 2.81 points to 1,570.61, off an early low of 1,568.58, but losers edged gainers 388 to 297 on slow trade totalling 945.4 million shares worth RM1.38 billion.

Stocks extended their rebound on Wednesday, copying regional gains as manufacturing in US and China improved in April, suggesting a recovering global economy would counter expectations for a slowdown in growth.

The index rose 11.78 points to settle at a high of 1,582.39, as gainers led losers 458 to 281 on better turnover of 1.33 billion shares worth RM1.43 billion. The local market paused for a profit-taking consolidation the next day, dampened by regional weakness as weak employment data from Europe to the US increased worries over a stuttering global economy.

The FBM KLCI rose 0.78 point to 1,583.17, off a high of 1,584.15, as losers edged gainers 390 to 344 on trade of 1.29 billion shares worth RM1.2 billion.

Blue chips recovered ahead of the weekend, ignoring regional falls after Australia cut its growth forecast and US service industries grew less than forecast, as late spikes in Tenaga and Genting Bhd lifted the key index to close at the day's high. The index ended at 1,591.04, off a low of 1,585.06, as gainers led losers 456 to 274 on volume of 1.33 billion shares worth RM1.59 billion.

The trading range for the index was 22.46 points last week, compared with the 25.9-point rangein the previous week, after blue chips rebounded from six-week lows.

Among other indices, the FBM-Emas Index recouped 1.46 per cent to 10,920.22, while the FBM-Small Cap Index rose 1.24 per cent to 12,466.25.

The daily slow stochastic indicator for the FBM KLCI has entered the neutral region following a buy signal early last week, but the weekly indicator slid further to indicate bearish momentum ahead. The 14-day Relative Strength Index (RSI) re-hooked upwards to read a more bullish 54.55, while the 14-week RSI bounced back for a reading of 60.77.

Meantime, the daily Moving Average Convergence Divergence (MACD) signal line has levelled off and is gradually ascending to the zero line, while the weekly MACD signal line also levelled off against the MACD line, suggesting weaker downward momentum. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator are poised to cross over and trigger a buy signal, but the ADX line stayed in non-trending mode.

Conclusion

While technical momentum for the index has improved considerably after last week's V-shape rebound, the broader market has yet to be convinced of a sustained recovery in the near term, with buying momentum failing to match the strong rebound witnessed in the index.

Meantime, the slump in US stocks last Friday following the weaker-than-expected April jobs growth data should spill over to dampen sentiment early this week and spark a belated correction. For the index, it must hold above the 10-, 50- and 30-day moving averages at 1,581, 1,583 and 1,590 respectively to prevent correction potential towards the February 16 pivot low of 1,549, and better chart supports from 1,549 and 1,511, the respective 100 and 200-day moving average supports.

These levels are reinforced by the 23.6 per cent and 38.2 per cent Fibonacci Retracement supports of the 1,310 trough of September 26, 2011 to 1,609 record peak of April 3 this year, at 1,538 and 1,495 respectively. Key resistance levels are at the 1,600 psychological level and the all-time high of 1,609.

On blue chip stock picks for this week, AirAsia, Genting Bhd and RHB Capital flashed multiple technical buy signals and have further rebound potential , but MAS is likely to languish at the RM1.20 level or even break down to stronger support at RM1.02 before levelling off given its bearish technical momentum.

As for lower liners, construction and conglomerate stocks such as MRCB, UEM Land, DRB-HICOM and Muhibbah Engineering are likely to bounce back after recent losses made them grossly oversold.

The subject expressed above is based purely on technical analyses and opinions of the writer. It is not a solicitation to buy or sell.