N. KOREA JITTERS WEIGH ON MAR­KET

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 mar­ket un­der­tone is ex­pected to re­main weak un­til in­vestors are con­vinced the on­go­ing war of words be­tween the US and North Korea will not evolve into a nu­clear war.

THE bench­mark FTSE Bursa Malaysia KLCI (FBM KLCI) tum­bled on Fri­day due to in­vestor jitters sparked by the overnight Wall Street slump trig­gered by ris­ing geopo­lit­i­cal ten­sions in North Korea.

This is af­ter re­gional mar­ket strength due to the pre­vi­ous Fri­day’s stronger-than-ex­pected United States jobs data lifted the lo­cal bourses in six con­sec­u­tive trad­ing ses­sions up to a six-week high.

For the week, the FBM KLCI gave back 7.57 points, or 0.43 per cent, to end at 1,766.96, as losses on Bri­tish Amer­i­can To­bacco (-RM1.21) and ma­jor bank­ing heavy­weights Hong Leong Fi­nan­cial Group Bhd (-40 sen), Hong Leong Bank Bhd (+20 sen) and RHB Bank Bhd (-20 sen) over­shad­owed gains in CIMB (+18 sen) and Pub­lic Bank Bhd (+9 sen). Av­er­age daily traded vol­ume and value dipped slightly to 1.69 bil­lion shares and RM1.81 bil­lion, com­pared with the 1.75 bil­lion shares and RM1.96 bil­lion, re­spec­tively, in the pre­vi­ous week.

The mar­ket un­der­tone is ex­pected to re­main weak un­til in­vestors are con­vinced the on­go­ing war of words be­tween the US and North Korea would not evolve into a nu­clear war.

A war in the Korean Penin­sula will not only af­fect the two na­tions but also US al­lies — South Korea, Ja­pan and Tai­wan. Po­ten­tial in­volve­ment of China and Rus­sia, North Korea’s al­lies, will make the sit­u­a­tion worse, which will af­fect the global econ­omy.

The tech­nol­ogy sec­tor will be crip­pled due to the dom­i­nance played by the US al­lies in the global prod­uct sup­ply chain.

As such any sign of in­creased ten­sion may cause higher price vo­latil­ity in the tech­nol­ogy stocks, which could be a buy­ing op­por­tu­nity if one be­lieves the war of words won’t es­ca­late.

With the cur­rent un­cer­tainty, in­vestors should not worry too much if the for­ward in­di­ca­tors, such as the US build­ing per­mits and starts, which will be re­leased on Wed­nes­day, come in strongerthan-ex­pected or if there are hints in the US Fed­eral Re­serve’s July meet­ing min­utes, which would be re­leased the fol­low­ing day, about a soon­erthan-ex­pected fur­ther in­crease in the in­ter­est rate and/or the tim­ing of the quan­ti­ta­tive eas­ing taper­ing.

Tech­ni­cal Out­look

Blue chips rose last Mon­day, push­ing the bench­mark in­dex up to a six-week high, lifted by re­gional strength. The FBM KLCI gained 3.38 points to close at 1,777.91, off an early low of 1,771.90 and high of 1,778.48, but losers beat gain­ers 516 to 363 on im­proved turnover of 1.94 bil­lion shares worth RM1.67 bil­lion.

The key in­dex man­aged to end higher the next day de­spite wide­spread profit-tak­ing on the broader mar­ket, lifted by gains in key bank­ing heavy­weights May­bank and CIMB. It added 3.74 points to set­tle at 1,781.65, off a low of 1,775.78 and high of 1,782.63, but losers trashed gain­ers 602 to 269 on ac­tive turnover of 2.09 bil­lion worth RM2.25 bil­lion.

Stocks closed lower on Wed­nes­day af­ter ris­ing for six con­sec­u­tive trad­ing ses­sions. The FBM KLCI shed 3.71 points to end at 1,777.94, af­ter swing­ing within a tight range bor­der­ing an early high of 1,779.77 and low of 1,775.99, as losers beat gain­ers 452 to 317 on slower trade to­talling 1.42 bil­lion shares worth RM1.73 bil­lion.

The broader mar­ket ex­tended profit-tak­ing con­sol­i­da­tion the fol­low­ing day. The FBM KLCI closed flat at 1,777.77 af­ter os­cil­lat­ing be­tween a high of 1,778.18 and a low of 1,773.64, as losers swamped gain­ers 624 to 259 on more cau­tious turnover to­talling 1.35 bil­lion worth RM1.50 bil­lion.

The mar­ket fell into a cor­rec­tion mode ahead of the week­end, sparked by in­creased ner­vous­ness among in­vestors fol­low­ing the overnight Wall Street slump. The in­dex tum­bled 10.81 points on Fri­day to end at the day’s low of 1,766.96, off an early high of 1,775.34, as losers trumped gain­ers 826 to 148 on mod­er­ate trade to­talling 1.64 bil­lion shares worth RM1.89 bil­lion.

The trad­ing range for the bluechip bench­mark in­dex last week was 15.67 points, com­pared with the 14.5-point range the pre­vi­ous week, as key in­dex heavy­weights slumped from a six-week high af­ter last Fri­day’s sell-off. For the week, the FBM Emas In­dex lost 117.43 points, or 0.93 per cent, to close at 12,502.44, while the FBMS­mall Cap In­dex plunged 593.48 points, or 3.45 per cent, to 16,622.68, as small-caps tum­bled on heavy re­tail profit-tak­ing ac­tiv­i­ties.

Fri­day’s steep cor­rec­tion trig­gered a sell sig­nal on the daily slow stochas­tics in­di­ca­tor for the FBM KLCI from a very over­bought ter­ri­tory, im­ply­ing fur­ther profit-tak­ing cor­rec­tion po­ten­tial this week, while the weekly in­di­ca­tor’s sig­nal line dipped back down to re­in­force the bear­ish daily in­di­ca­tor. The 14-day Rel­a­tive Strength In­dex (RSI) in­di­ca­tor also slumped to a bear­ish read­ing of 47.82 af­ter last Fri­day’s cor­rec­tion, while the 14week RSI dipped to a weaker read­ing at 58.17.

Mean­while, the daily Mov­ing Av­er­age Con­ver­gence Di­ver­gence’s (MACD) sig­nal line also hooked back down to sug­gest bear­ish po­ten­tial, which is re­in­forced by the weak trend read­ing on the weekly MACD in­di­ca­tor. The +DI and -DI lines on the 14day Di­rec­tional Move­ment In­dex (DMI) trend in­di­ca­tors are poised to trig­ger a sell sig­nal on fur­ther weak­ness, with the ADX line ris­ing to im­ply an emerg­ing down­trend­ing mar­ket.

Con­clu­sion

Fresh bear­ish tech­ni­cal mo­men­tum head­lined by a daily stochas­tics sell sig­nal im­plies fur­ther weak­ness ahead for the FBM KLCI fol­low­ing last Fri­day’s sell­off. Down­side mo­men­tum and cau­tious un­der­tone on the lo­cal mar­ket could in­crease on fur­ther sabre rat­tling from North Korea and the US as they jos­tle for supremacy in the North Asian geopo­lit­i­cal space.

On the in­dex, a con­firmed break­down be­low the 100-day mov­ing av­er­age level at 1,764 may ac­cel­er­ate down­ward cor­rec­tion to next ma­jor sup­port at 1,729, match­ing a key sup­port in April, while cru­cial up­trend sup­port is avail­able at the 200-day mov­ing av­er­age at 1,715. Im­me­di­ate over­head re­sis­tance will be at 1,783, the up­per Bollinger band, fol­lowed by the 16 June peak of 1,796.

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