PROFIT-TAK­ING LIKELY TO CON­TINUE

New Straits Times - - Business -

THE bench­mark FTSE Bursa Malaysia Kuala Lumpur Com­pos­ite In­dex (FMB KLCI) moved into side­ways trade last week, as profit-tak­ing re­stricted re­bound at­tempts after the much stronger-than-ex­pected first quar­ter gross do­mes­tic prod­uct (GDP) growth of 5.6 per cent year-on-year (YoY) was over­shad­owed by geopo­lit­i­cal wor­ries fol­low­ing a ter­ror­ist in­ci­dent in the United King­dom.

For the week, the FBM KLCI rose 4.02 points to 1,772.30 as gains on CIMB (+39sen), Hap Seng Con­sol­i­dated (+26sen) and Gent­ing Malaysia (+22sen) off­set losses on BAT (-74sen), Petronas Da­gan­gan (-60sen) and IHH Health­care (-38sen). Av­er­age daily traded vol­ume was slightly lower at 3.24 bil­lion shares worth RM2.88 bil­lion, com­pared with 3.39 bil­lion shares worth RM3.12 bil­lion pre­vi­ously as buy­ing mo­men­tum on the small cap and ACE Mar­ket sec­tor fiz­zled off.

A re­cov­ery in crude oil prices last Fri­day after the ini­tial plunge post-Opec (the Or­gan­i­sa­tion of the Petroleum Ex­port­ing Coun­tries) meet­ing, up­ward re­vi­sion in the US first quar­ter GDP and the still strong dou­ble-digit growth of 14 per cent YoY in Chi­nese in­dus­trial prof­its could cush­ion down­side pres­sure and con­trib­ute to­wards a pos­i­tive start this week, but mar­ket lacks strong cat­a­lysts for the bench­mark in­dex to break through the 1,800-psy­cho­log­i­cal bar­rier.

Oil price re­cov­ered by US$0.69 (RM2.95) to US$52.15 per bar­rel last Fri­day as dis­ap­point­ments were tem­pered by Saudi En­ergy min­is­ter’s com­ment that oil in­ven­to­ries would drop faster in the third quar­ter and Rus­sia’s state­ment that pro­duc­ers have more tools to sup­port prices.

If the out­put cut ex­ten­sion helps re­duce global crude in­ven­to­ries to be­low five-year av­er­age by March next year and these pro­duc­ers can agree on a longterm plan to main­tain this new equi­lib­rium, we may see Brent crude oil price breach­ing US$60 per bar­rel in the sec­ond quar­ter of next year.

This could as­sist the re­cou­pling of ring­git with crude oil and prob­a­bly by then the re­cent de­cou­pling be­tween these two vari­ables, caused by fear of faster than ex­pected mon­e­tary tight­en­ing in the US, could be mit­i­gated by a stronger-than-ex­pected re­cov­ery in the do­mes­tic econ­omy.

That aside, in­vestors would be keenly watch­ing the con­clu­sion of first-quar­ter re­sults re­port­ing sea­son to gauge signs of fur­ther up­grades in con­sen­sus earn­ings fore­casts for this year and next year that av­er­ages about six per cent for FBMKLCI com­po­nent stocks.

Tech­ni­cal Out­look

The FBM KLCI ended firmer on Mon­day, led by gains in heavy­weight Petronas stocks after the coun­try reg­is­tered a much stronger-than-ex­pected first quar­ter GDP growth of 5.6 per cent. The in­dex rose 6.67 points to close at the day’s high of 1,774.95 as gain­ers led losers 542 to 420 on strong to­tal turnover of 4.09 bil­lion shares worth RM2.95 bil­lion.

On Tues­day, stocks fell 7.78 points to the day’s low of 1,767.17 as losers swarmed gain­ers 636 to 292 on slower turnover of 2.91 bil­lion shares worth RM2.8 bil­lion.

The in­dex sal­vaged some gains on Wed­nes­day, helped by bar­gain­hunt­ing in­ter­est in bank­ing stocks on the back of strong record first quar­ter earn­ings en­joyed by CIMB, off­set­ting Moody’s down­grade of China’s rat­ings for the first time in nearly 30 years.

The FBM KLCI gained 3.84 points to 1,771.01 as losers beat gain­ers 546 to 419 on ac­tive trade to­talling 3.37 bil­lion shares worth RM2.89 bil­lion. Blue chips ended slightly firmer the sub­se­quent day, lifted by the stronger ring­git and re­gional peers, after the US Fed min­utes in­di­cated a pos­si­ble de­lay in rais­ing rates pend­ing more ev­i­dence of sus­tained eco­nomic growth.

The FBM KLCI edged 2.95 points up to set­tle at 1,773.96 but losers beat gain­ers 590 to 377 on re­duced to­tal turnover of 2.94 bil­lion shares worth RM3.17 bil­lion.

Stocks slipped back into prof­ittak­ing con­sol­i­da­tion mode on Fri­day, tak­ing the cue from weaker re­gional mar­kets and oil prices as in­vestors were con­cerned ex­tended out­put cuts for nine months may not be large enough to off­set the global glut. The in­dex eased 1.66 points to 1,772.30 as losers trashed gain­ers 771 to 208 on slower turnover to­tal­ing 2.86 bil­lion shares worth RM2.6 bil­lion.

Trad­ing range for the blue-chip bench­mark in­dex last week shrank to 15.43 points, com­pared with 25.5-point range pre­vi­ous week. The FBM EMAS In­dex eased 24.30 points to 12,661.58, while the FBM Small Cap In­dex slumped 265.98 points to 17,576.12 as small­cap stocks fell into profit-tak­ing cor­rec­tion mode.

The daily slow sto­chas­tic mo­men­tum in­di­ca­tor for the FBM KLCI stayed soft in the neu­tral re­gion after flash­ing a bear­ish di­ver­gence sig­nal against the in­dex the pre­vi­ous week, while the weekly in­di­ca­tor con­tin­ued hook­ing down in over­bought ter­ri­tory. The 14-day Rel­a­tive Strength In­dex (RSI) in­di­ca­tor re­tained the bear­ish di­ver­gence with a hook­down in neu­tral ground, but the 14-week RSI hooked up to a slightly higher read­ing of 68.36.

The daily Mov­ing Av­er­age Con­ver­gence Di­ver­gence (MACD) trend in­di­ca­tor re­mained bear­ish with a sim­i­lar bear­ish di­ver­gence cloud­ing the out­look, while the weekly MACD in­di­ca­tor’s sig­nal line is lev­el­ing fur­ther, sug­gest­ing weak up­side mo­men­tum. How­ever, the 14-day Di­rec­tional Move­ment In­dex (DMI) trend in­di­ca­tor stayed un­changed, with the +DI and –DI lines at a com­fort­able dis­tance on a lev­el­ing ADX line.

Con­clu­sion

More profit-tak­ing con­sol­i­da­tion is likely this week as the pre­vi­ous bear­ish di­ver­gence sig­nals on the daily slow stochas­tics, RSI and MACD in­di­ca­tors for the FBM KLCI have yet to be neu­tralised by a con­firmed pen­e­tra­tion of the re­cent two-year high of 1,787 to the up­side. In the mean­time, sup­port build­ing at cur­rent lev­els or slightly lower will be cru­cial to in­still con­fi­dence and en­cour­age in­vestors to bar­gain hunt for re­cov­ery ahead.

Im­me­di­ate up­trend sup­ports for the in­dex stays at the ris­ing 30- and 50-day mov­ing av­er­age lev­els, now at 1,763 and 1,756, with bet­ter sup­port at 1,740, then 1,729. Im­me­di­ate up­side hur­dle for the bench­mark stays at the re­cent two-year high of 1,787, fol­lowed by the 1,800-psy­cho­log­i­cal level and May 18 2015 high of 1,823.

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

If the out­put cut ex­ten­sion helps re­duce global crude in­ven­to­ries to be­low five-year av­er­age by March next year and these pro­duc­ers can agree on a longterm plan to main­tain this new equi­lib­rium, we may see Brent crude oil price breach­ing US$60 per bar­rel in the sec­ond quar­ter of next year.

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