TREND INDICATORS

The FTSE Bursa Malaysia KLCI (FBM KLCI) came off a fresh 22-month high early last week due to overbought technical momentum, which encouraged profit-taking on blue chips, but strong retail interest on penny and ACE Market stocks helped lift trading volume to the second highest on record.

The Wall Street correction, sparked by overvaluation concerns, forced a healthy pullback in mid-week, but selective smallcap penny and ACE Market stocks in the information and communications technology and Internet business staged sharp rallies on hopes they will be involved in the digital free trade zone.

For the week, the FBM KLCI edged 0.55 point up to 1,745.75, with gains in Genting Malaysia (+10 sen), Petronas Chemicals (+9 sen), Maybank (+9 sen) and Maxis (+7 sen) offsetting losses on BAT (-74 sen), KLK (-28 sen) and PPB Group (-24 sen).

Average daily traded volume and value ballooned to 4.45 billion shares and RM3.05 billion, compared with the 3.88 billion shares and RM3.44 billion average the previous week, fuelled by strong buying momentum on lower liners, small caps and ACE Market stocks, which pushed daily volumes to near record highs.

The impact of cost-push inflation continued to be visible last Friday when the consumer price index for last month was announced.

The 4.5 per cent year-on-year (YoY) growth in inflation was steeper than the consensus expectations of 3.9 per cent YoY, no thanks to the rebound in fuel prices and the weaker ringgit.

The index of transport group showed a significant increase of 17.9 per cent YoY mainly due to the fuel price increase.

Last Thursday, the central bank raised its inflation expectations for the year to between three and four per cent, from two and three per cent previously.

As banks would be the biggest beneficiaries due to expansion in their net interest margin, buying interest in these blue chips will underscore continued strength in the benchmark FBM KLCI.

Anticipation of the 14th general election would cushion any profit-taking pressures in the short-term.

Technical Outlook

The blue-chip benchmark index eased off a fresh 22-month high early last Monday due to profit-taking interest, but strong retail interest on penny and ACE Market stocks helped lift trading volume to the second highest on record. The FBM KLCI climbed 4.21 points to settle at 1,749.41, off the opening low of 1,744.07 and high of 1,755.26, as gainers led losers 546 to 421 on very strong turnover totalling 6.02 billion shares worth RM3.02 billion.

Stocks closed higher the following day.. The FBM KLCI added 5.26 points to end at 1,754.67, off the high of 1,757.99 and low of 1,748.82, as gainers edged losers 496 to 477 on less robust turnover totalling 4.58 billion shares worth RM3.28 billion.

The local stock market recovered from an earlier sell-off on Wednesday. The index ended 6.37 points down at the day’s high of 1,748.3, off an earlier low of 1,738.4, as losers swarmed gainers 605 to 328 on much lower turnover of 3.16 billion shares worth RM2.75 billion. While blue chips closed weaker due to profit-taking interest the next day, small-cap penny and ACE Market stocks were actively traded with selective counters staging sharp rallies.

The FBM KLCI ended 1.3 points down at the day’s low of 1,747, off an earlier high of 1,753.76, as gainers led losers 596 to 378 on robust trade totaling 4.78 billion shares worth RM3.66 billion.

Blue chips continued trading sideways due to profit-taking consolidation, but active rotational plays stayed keen in ICT and Internet-related small-cap stocks. The index eased 1.25 points to end Friday at 1,745.75, off an early high of 1,749.61 and low of 1,745.43, but losers overcame gainers 590 to 312 on reduced turnover totalling 3.7 billion shares worth RM2.53 billion.

Trading range for the blue-chip benchmark index last week halved to 19.59 points, compared with the previous week’s 38.18 points, as blue chips slipped into profit-taking sideways trade. For the week, the FBM Emas Index edged 24.52 point, or 0.2 per cent, higher to 12,365.86, while the FBM Small Cap Index appreciated 101.59 points, or 0.6 per cent, to 16,950.05, as small-cap stocks continued to outperform substantially on very active rotational trading plays.

A short-term signal flashed on the daily slow stochastic indicator for the FBM KLCI, while the weekly indicator’s signal line stayed stubbornly in the overbought zone. The 14-day Relative Strength Index (RSI) indicator also triggered a sell after hooking down from the overbought zone, while the 14-week RSI levelled with an elevated reading of 69.62 as of last Friday.

The daily Moving Average Convergence Divergence (MACD) trend indicator’s signal line lost some upside momentum after last week’s profit-taking consolidation, but the weekly MACD indicator continued on its bullish trajectory. The +DI and -DI lines on the 14-day Directional Movement Index trend indicator also sustained their bullish expansion on a firming ADX line, reinforcing the uptrend mode.

Conclusion

While momentum indicators for the FBM KLCI are short-term bearish and point to further correction this week, following last week’s shallow profit-taking dip, trend indicators stayed in bullish mode, with robust buying momentum on lower liners, small caps and ACE Market stocks driving bullish sentiment on the broader market.

Moreover, a good possibility for end first-quarter window dressing by late week should boost market sentiment and promote further upside momentum ahead.

For the index, immediate upside hurdles were at 1,758, the 23.6 per cent Fibonacci Retracement (FR) of the 1,310 to 1,896 upswing matching last week’s high, and 1,782, the 76.4 per cent FR of the 1,867 to 1,503 correction, followed by 1,800 and the May 18 2015 high of 1,823. Immediate uptrend supports were at 1,739 and 1,720, representing the rising 10- and 30-day moving averages.

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