MORE COR­REC­TION

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.

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.

Tech­ni­cal Out­look

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.

Con­clu­sion

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.

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