MORE DOWNSIDE BIAS LIKELY THIS WEEK
THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) stayed depressed near threemonth lows last week, ignoring regional strength helped by robust United States jobs numbers and tame June inflation data from China.
The weak earnings from telcos and persistent profit-taking interest overshadowed the rebound in foreign markets encouraged by the US Federal Reserve (Fed) chair Janet Yellen’s dovish comments for a gradual rise in interest rates.
For the week, the FBM KLCI lost another 4.93 points, or 0.28 per cent, to 1,755, with falls from DiGi.com (-34 sen), Petronas Dagangan Bhd (-26 sen), Petronas Chemicals Group Bhd (-24 sen), CIMB Bhd (-21 sen) and Telekom Malaysia (-15 sen) offsetting gains on British American Tobacco (+68 sen), Hong Leong Financial Group (+58 sen) and Genting Bhd (+36 sen). Average daily traded volume and value improved to 1.86 billion shares and RM1.86 billion, compared with the 1.6 billion shares and RM1.7 billion average, respectively, the previous week.
The US markets’ strong performance on Friday could spill over to the local bourse today after the S&P 500 and the Dow Jones Industrial Average hit new highs subsequent to the release of weaker-than-expected inflation and retail sales numbers for last month.
The weaker data tempered expectations of another interest rate hike by Fed in the second half of this year. If the forward indicators like the US housing starts and building permits for last month, which will be released on Wednesday, reaffirm the view that the rebound in the US economy may not be as strong as expected in the coming quarters, it could allay the pressure on ringgit and reignite the inflow of foreign funds, premised on Malaysia’s stronger growth, revival in corporate earnings and expectations of an election rally.
China’s second-quarter gross domestic product that will be released today should be a boon for market sentiment if it beats expectations as the country is our largest trading partner and an important barometer to our exports growth momentum.
Malaysia’s inflation figure for last month is also expected to be within consensus forecast of 3.8 per cent, underscoring the central bank’s decision to maintain the Overnight Policy Rate at three per cent in last week’s meeting.
The local benchmark index hovered near three-month lows last Monday. The FBM KLCI fell 2.8 points to settle at 1,757.13, after ranging between an early high of 1,760.44 and low of 1,754.57, as losers beat gainers 556 to 294 on moderate turnover of 1.66 billion shares worth RM1.51 billion.
Stocks extended correction the next day, with banks leading blue chip weaknesses. The FBM KLCI slid another 2.1 points to close at 1,775.03, after falling from the 1,758.27 high to 1,752.74 low as losers swarmed gainers 715 to 198 on higher total turnover of 1.73 billion shares worth RM2.07 billion.
Listless sideways trade persisted on Wednesday. The FBM KLCI ended up 2.21 points at the day’s high of 1,757.24, off an intra-day low of 1,751.59, as gainers edged losers 460 to 362 on total turnover of 1.78 billion shares worth RM1.77 billion.
Blue chips led by telcos ended lower the following day. The FBM KLCI ended 3.46 points down at 1,753.78, off an early high of 1,760.66 and low of 1,752.59, but gainers led losers 441 to 370 on steady turnover totalling 1.73 billion shares worth RM2.02 billion.
Stocks drifted lower on Friday, dampened by the absence of positive domestic catalysts, weak buying interest and bearish technical momentum ahead of the weekend. The index gained 1.22 points to close at 1,755, off an early high of 1,757.24 and low of 1,751.69, as losers beat gainers 469 to 369 on higher turnover of 2.37 billion shares worth RM1.91 billion.
Trading range for the blue-chip benchmark index last week shrank further to 9.07 points, compared with the 14.16-point range the previous week, as key index heavyweights stayed in narrow range trading mode. For the week, the FBM Emas Index slipped another 56.09 points, or 0.45 per cent, to 12,494.68, while the FBM Small Cap Index shed 247.56 points, or 1.42 per cent, to 17,130.57, as more small-cap stocks fell into profit-taking correction mode.
On short-term technical momentum indicators, while the daily slow stochastics indicator for the FBM KLCI stayed depressed in oversold territory, the weekly indicator’s signal line slid further south below the mid-point. The 14-day Relative Strength Index (RSI) indicator also stayed weak with a bearish reading of 38.45 as of last Friday, while the 14-week RSI eased further for a weak reading of 55.44.
On trend indicators, the daily Moving Average Convergence Divergence’s (MACD) signal line continued its journey lower in bearish territory, reinforcing the bearish trend reading on the weekly MACD indicator. The -DI and +DI lines on the 14-day Directional Movement Index trend indicator sustained their bearish expansion with a slight incline on the ADX line suggesting an emerging bearish trend ahead.
No doubt, the technical indicators for the FBM KLCI remained weak despite the corrections in the past four weeks, and point to more downside bias before a more sustainable base building process can follow.
While current bearish technical momentum implied more corrections to cheaper levels are necessary, favourable external development could act as a stabiliser in the immediate-term, more so if China’s second-quarter economic growth surpassed expectations and the US economic data this week supports further delays in the next interest rate hike.
On the index, if immediate support from the 100-day moving average at 1,753 fails to hold, stronger support will be at 1,729, a key support level in April, while crucial uptrend support is from the 200-day moving average at 1,705. Immediate resistance stays at the 50-day moving average now at 1,772, next at 1,782, followed by the recent peak of 1,796.