PROFIT-TAK­ING LIKELY TO CON­TINUE

New Straits Times - - Business - The sub­ject ex­pressed above is based purely on tech­ni­cal anal­y­sis and opin­ions of the writer. It is not a so­lic­i­ta­tion to buy or sell.

AF­TER the FTSE Bursa Malaysia KLCI (FMB KLCI) reached a fresh two-year high last week, driven by a stronger ring­git that rose to a five-month high of RM4.32 against the US dol­lar, the lo­cal stock mar­ket went into profit-tak­ing mode.

The mar­ket was sparked by the un­ex­pected ter­mi­na­tion of a ma­jor­ity stake sale (60 per cent stake) of Ban­dar Malaysia to IWH Crec Sdn Bhd (ICSB), a con­sor­tium com­pris­ing Iskan­dar Wa­ter­front Hold­ings Sdn Bhd (IWH) and China Rail­way En­gi­neer­ing Corp (M) Sdn Bhd, and more cer­tainty for the United States in­ter­est rate hike next month.

How­ever, stocks bounced back ahead of the week­end, as in­vestors were com­forted by the govern­ment’s as­sur­ance on con­tin­ued de­vel­op­ment of Ban­dar Malaysia and as banks re­bounded on bar­gain-hunt­ing in­ter­est.

For the week, the FBM KLCI slipped 5.32 points, or 0.3 per cent, to 1,762.74, as losses on Petronas Gas (-42 sen), Hap Seng Con­sol­i­dated (-14 sen) and Petronas Da­gan­gan (-10 sen) were off­set by gains on Hong Leong Fi­nan­cial Group (+14 sen), AmBank (+11 sen) and May­bank (+10 sen). Av­er­age daily traded vol­ume im­proved to 3.7 bil­lion shares, while value stayed flat at 2.98 bil­lion, com­pared with the 3.44 bil­lion shares and RM2.98 bil­lion av­er­age, re­spec­tively, the pre­vi­ous week, as ro­bust buy­ing mo­men­tum shifted to the small cap and ACE Mar­ket sec­tor.

The out­come of the fi­nal round of French elec­tion yes­ter­day may not have any long-last­ing pos­i­tive im­pact on global fi­nan­cial mar­kets this week should Em­manuel Macron be cho­sen as the French pres­i­dent as share prices have largely fac­tored in his vic­tory.

As for Ban­dar Malaysia, the ru­mour mills will be ac­tive again in spec­u­lat­ing the next po­ten­tial suitor for this mam­moth project that is slated to have a gross de­vel­op­ment value of more than RM200 bil­lion.

Ru­mours have resur­faced that the Mal­ton Group, to­gether with China-based Dalian Wanda Group, is eye­ing for the job again and a govern­ment-linked fund could be roped in as part of the con­sor­tium. Thus, we can con­tinue to wit­ness some price volatil­ity in shares of con­struc­tion stocks and re­lated play­ers such as Mal­ton and WCT, which surged on Fri­day.

Bank Ne­gara Malaysia is ex­pected to main­tain its pol­icy rate at three per cent when it meets on Fri­day al­though in­fla­tion ex­pec­ta­tions for this year have gone up nearer to up­per-end of its fore­cast range of three to four per cent and real in­ter­est rate has turned neg­a­tive in the first three months of this year.

Tech­ni­cal Out­look

Bursa Malaysia shares rose last Tues­day, with the bench­mark surg­ing to a near two-year high. The FBM KLCI climbed 10.41 points to close at 1,778.47, off an early low of 1,769.16 and high of 1,781.55, as gain­ers led losers 594 to 411 on ro­bust turnover of 3.88 bil­lion shares worth RM3.48 bil­lion.

Stocks fell for profit-tak­ing cor­rec­tion the next day, led by key blue-chip heavy­weights in tan­dem with re­gional mar­kets. The FBM KLCI fell 5.96 points to close at 1,772.51, off an early twoyear high of 1,784.79 and low of 1,770.06, as losers led gain­ers 535 to 391 on strong turnover of 3.89 bil­lion shares worth RM3.04 bil­lion.

The lo­cal mar­ket slipped fur­ther into profit-tak­ing cor­rec­tion mode on Thurs­day. The FBM KLCI ended 13.84 points down to 1,758.67, off an early high of 1,768.71 and low of 1,754.23, as losers trashed gain­ers 824 to 185 on lower turnover of 3.44 bil­lion shares worth RM2.88 bil­lion.

Stocks staged mild re­cov­ery from the profit-tak­ing cor­rec­tion ahead of the week­end. The in­dex climbed 4.07 points to close at 1,762.74, off an early low of 1,757.54 and high of 1,763.92, as gain­ers led losers 617 to 327 on higher turnover of 3.57 bil­lion shares worth RM2.49 bil­lion.

Trad­ing range for the blue-chip bench­mark in­dex last week ex­panded to 30.56 points, com­pared with the nar­row 13.74-point range the pre­vi­ous week, as the in­dex suf­fered a deep cor­rec­tion from a fresh two-year high.

For the week, the FBM Emas In­dex eased 33.99 points, or 0.27 per cent, to 12,597.53, but the FBM Small Cap In­dex added 49.26 points, or 0.28 per cent, to 17,710.98, thanks to strong ro­ta­tional buy­ing com­mit­ments in small cap and ACE Mar­ket stocks by re­tail­ers.

Due to last week’s profit-tak­ing cor­rec­tion, the daily slow sto­chas­tic mo­men­tum in­di­ca­tor for the FBM KLCI has hooked down to­wards the neu­tral zone to neu­tralise prior over­bought mo­men­tum, but the weekly in­di­ca­tor has re-hooked down­wards in over­bought ter­ri­tory, sug­gest­ing this cor­rec­tion may prob­a­bly still be in the early stages.

On the other hand, the 14-day Rel­a­tive Strength In­dex (RSI) in­di­ca­tor has re-hooked up­wards to a neu­tral read­ing of 57.60 as of Fri­day, but the 14-week RSI hooked down from slightly over­bought at 68.33, and could weaken fur­ther if last week’s re­bound lacks fol­low-through.

Mean­while, on trend in­di­ca­tors, the daily Mov­ing Av­er­age Con­ver­gence Di­ver­gence (MACD) in­di­ca­tor’s trig­ger line has eased down­wards to sug­gest re­duc­ing up­side mo­men­tum, but the up­trend mo­men­tum on the weekly MACD in­di­ca­tor stayed in­tact. As for the 14-day Di­rec­tional Move­ment In­dex (DMI) trend in­di­ca­tor, the +DI and –DI lin­ers have con­tracted on a mildly eas­ing ADX line, sig­nalling a de­te­ri­o­ra­tion of the up­trend strength.

Con­clu­sion

While daily mo­men­tum in­di­ca­tors for the FBM KLCI have been fully neu­tralised by last week’s profit-tak­ing cor­rec­tion, weekly in­di­ca­tors are still hook­ing down and dis­play­ing bear­ish po­ten­tial. Also, weaker trend in­di­ca­tors im­ply this cor­rec­tion may need to ab­sorb fur­ther profit-tak­ing pres­sure this week, be­fore bar­gain hun­ters re­turn to re­build sup­port.

As for the in­dex, im­me­di­ate up­trend sup­ports will be at 1,750 and 1,739, the ris­ing 30- and 50day mov­ing av­er­age lev­els, with bet­ter sup­port from the lower Bollinger band at 1,723.

Im­me­di­ate up­side hur­dle stays at 1,782, the 76.4 per cent Fi­bonacci Re­trace­ment of the 1,867 to 1,503 down­swing closely match­ing the re­cent two-year high, fol­lowed by the 1,800 psy­cho­log­i­cal level and May 18 2015 high of 1,823.

Bank Ne­gara Malaysia is ex­pected to main­tain its pol­icy rate at three per cent when it meets on Fri­day al­though in­fla­tion ex­pec­ta­tions for this year have gone up nearer to up­perend of its fore­cast range of three to four per cent

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