PROFIT-taking forced the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) to pull back from a fresh two-year high last week. This condition accelerated following sharp corrections on the United States stocks and the region amid increased scrutiny over the sustainability of the US President’s market reforms.
Week-on-week, the FBM KLCI retraced 7.59 points, or 0.4 per cent, to 1,768.28, dragged down mostly by losses on BAT (-42 sen), HLFG (-36 sen), IHH (-17 sen), AmBank (-11 sen) and IOI Corp (-11 sen). Average daily traded volume stabilised at 3.39 billion shares, while value improved to RM3.12 billion, compared with 3.37 billion shares and RM2.7 billion average, respectively, the previous week, as buying momentum on the small cap and ACE Market sector recovered.
Malaysia’s first-quarter gross domestic product (GDP) announcement showed a much stronger performance than consensus expectations at 5.6 per cent year-on-year (YoY).
The strong outperformance was underpinned by a steady growth in domestic demand and higher investments from the private sector.
With this, Bank Negara Malaysia expects growth momentum to sustain and full-year expansion to come in at the higher-end of the projected 4.3 per cent to 4.8 per cent.
The recent recovery in crude oil prices is another boost for the economic growth. There could be some trading interest in the oil and gas stocks this week.
Better-than-expected GDP growth and higher crude oil price expectations should be positive for the ringgit and market sentiment as well. Records showed foreign investors have been net buyers of Malaysian equities in the first four months of this year and they have turned net buyers of domestic bonds for the first time this year in April (+RM6.76 billion), which contributed to the current below four per cent yield for the 10-year MGS.
Of course, anything negative or contrary to above expectations will exert downside pressure on the benchmark index. However, any corrective pressures are expected to be minimal and well absorbed, in view of the recovery in economic activities and corporate earnings, to sustain the FBM KLCI’s momentum until the 14th general election. The impending launch of the mid- and small-cap scheme by Bursa Malaysia this week is another catalyst for investors who are seeking alpha to outperform the benchmark index.
While blue chips stayed in consolidation mode last Monday, lower liners perked up in late afternoon trade led by Ecovest and IWCity. The FBM KLCI gained 2.78 points to close at the day’s high of 1,778.65, off an earlier low of 1,771.87, as losers beat gainers 508 to 421 on active trade totalling 3.74 billion shares worth RM2.99 billion.
The local benchmark slid from a fresh two-year high on profittaking the next day. The FBM KLCI ended off half-a-point at 1,778.15, after falling from an early high of 1,787.54 to low of 1,773.09, as losers edged gainers 497 to 412 on lower turnover of 3.51 billion shares worth RM3.84 billion.
Blue chips extended profit-taking consolidation on Wednesday. The FBM KLCI ended 2.5 points down to 1,775.65, off an early high of 1,779.94 and low of 1,770.22, as losers beat gainers 473 to 417 on total turnover of 3.45 billion shares worth RM2.88 billion. Stocks slumped the subsequent day, dragged down by sharp corrections on overnight US stocks and the region. The FBM KLCI shed 8.48 points to close at 1,767.17, after oscillating between an early low of 1,762.04 and high of 1,769.80, as losers swarmed gainers 625 to 317 on reduced turnover totalling 2.98 billion shares worth RM2.64 billion.
The local market staged mild recovery on Friday, encouraged by the overnight US market rebound. The index ended 1.11 points up at 1,768.28, off a high of 1,771.50 and low of 1,767.89, as gainers led losers 623 to 302 on improved total turnover of 3.27 billion shares worth RM3.12 billion.
Trading range for the blue-chip benchmark index last week expanded to 25.5 points, compared with the 17.2-point range the previous week, as profit-taking interest forced a significant retracement from a fresh two-year high. For the week, the FBM Emas Index slipped 32.22 points, or 0.25 per cent, to 12,685.88, but the FBM Small Cap Index rose 160.69 points, or 0.9 per cent, to 17,842.10, helped by resurgent rotational buying in small-cap stocks.
The daily slow stochastic momentum indicator for the FBM KLCI hooked down to show a bearish divergence against the index, which charted a higher high, while the weekly indicator hooked back down in overbought territory. The 14-day Relative Strength Index (RSI) indicator also registered a bearish divergence with a weaker reading of 55.38 as at last Friday, while the 14-week RSI hooked down to a softer reading of 67.50.
The daily Moving Average Convergence Divergence (MACD) trend indicator’s trigger line flashed a sell signal backed by a similar bearish divergence pictorial, while the weekly MACD indicator’s signal line is levelling, suggesting weaker upside momentum. On the other hand, the 14-day Directional Movement Index (DMI) trend indicator stayed positive with the +DI and –DI lines at a comfortable distance on a stable ADX line, suggesting the uptrend is intact.
The presence of bearish divergence signals on momentum and trend indicators, as they made lower peaks following last week’s failure swing on the index, which came off a higher peak, suggest more correction or profit-taking should ensue this week.
Nonetheless, trading could be choppy given the increased volatility in US markets, while the index will need to convincingly climb above the recent two-year high to counter the bearish divergence signals.
Immediate uptrend supports for the index stays at the rising 30 and 50-day moving average levels, now at 1,757 and 1,750, reinforced by the lower Bollinger band at 1,749. Immediate upside hurdle for the benchmark stays at last Tuesday’s new two-year high of 1,787, followed by the 1,800 psychological level and May 18 2015 high of 1,823.