TRAD­ING TREND

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.

THE local stock mar­ket proved re­silient last week, with the bench­mark FTSE Bursa Malaysia Kuala Lumpur Com­pos­ite In­dex (FMB KLCI) bounc­ing back led by banks on hopes for higher div­i­dends after Bank Ne­gara re­moved re­serve fund re­quire­ments.

On the for­eign front, the elec­tion vic­tory of euro-friendly French Pres­i­dent Macron and oil price and ring­git strength helped im­prove sen­ti­ment as weekly United States oil sup­plies fell and Saudi ex­ports to Asia de­clined, but profit-tak­ing in­ter­est re­sumed on the weaker earn­ings from US re­tail­ers which in­creased fears over the sus­tain­abil­ity of US eco­nomic growth.

Week-on-week, the FBM KLCI rose 0.7 per cent to 1,775.87, helped by gains on BAT (+RM1.27), PPB Group (+25 sen), KLK (+22 sen), and fi­nan­cial in­sti­tu­tions Hong Leong Bank (+20 sen), HLFG (+16 sen) and CIMB (+14 sen).

Av­er­age daily traded vol­ume mod­er­ated to 3.37 bil­lion shares with value eased to RM2.7 bil­lion, com­pared with 3.7 bil­lion shares worth RM2.98 bil­lion in the pre­vi­ous week, as buy­ing mo­men­tum con­tin­ued to con­cen­trate on the small cap and ACE Mar­ket sec­tors.

As widely ex­pected, Bank Ne­gara Malaysia main­tained its Overnight Pol­icy Rate at three per cent last Fri­day’s meet­ing, say­ing it is sup­port­ive of eco­nomic activities.

It is not sur­pris­ing as the in­fla­tion­ary pres­sures that we have wit­nessed in re­cent months were not de­mand-pull and driven by in­crease in in­put prices, which was largely driven by a re­ver­sal in crude oil prices.

Malaysia will an­nounce its first quar­ter gross do­mes­tic prod­uct (GDP) growth fig­ure this Fri­day.

Ac­tual growth is ex­pected to fall much within con­sen­sus fore­cast of 4.6per cent year-on-year (YoY), after ex­pand­ing 4.5 per cent YoY in the fi­nal quar­ter of last year, as the cen­tral bank has pro­vided a clue in its mone­tary pol­icy state­ment on Fri­day, say­ing growth mo­men­tum ex­pected to strengthen in the first quar­ter and to be sus­tained for the rest of the year.

This was re­flec­tive in the re­cent In­dus­trial Pro­duc­tion data that showed over­all pro­duc­tion in­creased 4.3 per cent YoY in 1Q17 after post­ing growth of 5.0 per cent YoY in the prior quar­ter and 2.8 per cent in the first quar­ter 2016. Man­u­fac­tur­ing sec­tors had been im­prov­ing and was trend­ing in tan­dem with the ex­ports growth mo­men­tum dur­ing the same pe­riod.

Tech­ni­cal Out­look

Bursa Malaysia shares rose on Mon­day, led by banks on hopes for higher div­i­dends after Bank Ne­gara re­moved re­serve funds re­quire­ment and the elec­tion vic­tory of French pres­i­dent Macron over the week­end. The in­dex gained 5.41 points to close at the day’s high of 1,768.15, off an early low of 1,763.29, as gain­ers led losers 546 to 388 on ac­tive trade to­talling four bil­lion shares worth RM2.42 bil­lion.

The local mar­ket traded side­ways the next day, as profit-tak­ing in­ter­est rose amid un­cer­tain­ties over the Ban­dar Malaysia project. The FBM KLCI eased 1.59 points to set­tle at 1,766.56, after mov­ing within a nar­row range bor­der­ing 1,770.43 and 1,765.14, as losers edged gain­ers 455 to 427 on slower turnover to­talling 3.23 bil­lion shares worth RM2.73 bil­lion.

Blue chips rose on Thurs­day, with Petronas coun­ters lead­ing gains. The local bourse roe 8.83 points to end at 1,775.39, near the day’s low of 1,774.59 and off an early high of 1,780.49, as gain­ers led losers 560 to 379 on bet­ter turnover of 3.55 bil­lion shares worth RM3.48bil­lion.

The in­dex closed up 0.48 points on Fri­day at 1,775.87, off an early high of 1,778.64 and low of 1,773.15, as losers edged gain­ers 516 to 424 on much slower turnover to­talling 2.7 bil­lion shares worth RM2.17bil­lion.

Trad­ing range for the blue-chip bench­mark in­dex last week shrank to 17.2 points, com­pared with the wide 30.56-point range in the pre­vi­ous week, as blue chips mostly went into side­ways trade.

For the week, the FBM Emas In­dex added 0.96 per cent to 12,718.10, but the FBM Small Cap In­dex eased 0.17 per cent to 17,681.41.

Last week’s re­bound en­cour­aged the daily slow sto­chas­tic mo­men­tum in­di­ca­tor for the FBM KLCI to hook back up and trig­ger a buy sig­nal in the up­per zone, while the weekly in­di­ca­tor re-hooked up­wards in over­bought ter­ri­tory.

The 14-day Rel­a­tive Strength In­dex (RSI) in­di­ca­tor also re­hooked up­wards to a bullish read­ing of 64.20 as of last Fri­day, while the 14-week RSI hooked up to a slightly over­bought read­ing of 70.88.

Mean­time, the daily Mov­ing Av­er­age Con­ver­gence Di­ver­gence (MACD) trend in­di­ca­tor’s trig­ger line ex­panded pos­i­tively to sug­gest re­newed up­side mo­men­tum, re­in­forced by the up­trend mo­men­tum on the weekly MACD in­di­ca­tor which re­mained in­tact.

As for the 14-day Di­rec­tional Move­ment In­dex (DMI) trend in­di­ca­tor, the +DI and –DI lines showed bullish ex­pan­sion on a mildly ris­ing ADX line, sig­nalling a re­in­state­ment of the prior up­trend.

Con­clu­sion

The re­turn of bullish sig­nals on most mo­men­tum and trend in­di­ca­tors on the FBM KLCI that we track fol­low­ing last week’s re­bound sug­gests that the present profit-tak­ing con­sol­i­da­tion had run its course, thus paving the way for up­trend re­sump­tion.

Trad­ing mo­men­tum should stay ro­bust, es­pe­cially on lower lin­ers or small-cap con­struc­tion and tech­nol­ogy re­lated coun­ters on hopes for China plays.

Im­me­di­ate up­side hur­dles for the bench­mark 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 of 1,784, fol­lowed by the 1,800 psy­cho­log­i­cal level and 18 May 2015 high of 1,823. Im­me­di­ate up­trend sup­ports stays at the ris­ing 30 and 50-day mov­ing av­er­age lev­els, cur­rently at 1,753 and 1,745, with bet­ter sup­port from the lower Bollinger band at 1,728.

Chart-wise, in­vestors should look to ac­cu­mu­late blue chips such as Ax­i­ata, Genting Malaysia, Sime Darby and Te­naga for longer-term up­side, while bar­gain con­struc­tion re­lated stocks like Gadang, Kim Lun, Mu­da­jaya and Sun­way Con­struc­tion given the pos­i­tive out­look on the sec­tor.

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