FURTHER CORRECTION LIKELY THIS WEEK
THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) lost ground last week, dragged lower by external geopolitical concerns in the United States and Europe.
It overshadowed the strongerthan-expected second-quarter gross domestic product growth of 5.8 per cent. Disappointment over the failed AMMB Holdings Bhd-RHB Group banking merger deal and investor caution ahead of the much anticipated annual global central bankers meeting in Jackson Hole over the weekend encouraged profit-taking and selling activities.
Week-on-week, the FBM KLCI shed 7.05 points, or 0.4 per cent, to 1,769.17, with losses on British American Tobacco (-42 sen), Genting Malaysia Bhd (-32 sen), AMMB Holdings (-27 sen) and Sime Darby Bhd (-15 sen) offsetting gains in PPB Group Bhd (+30 sen) and Kuala Lumpur Kepong Bhd (+14 sen). Average daily traded volume and value rose to 1.92 billion shares and RM1.91 billion, respectively, compared with the 1.66 billion shares and RM1.75 billion average the previous week, as trading momentum picked up in the later part of last week.
Investor sentiment may remain subdued in this three-day trading week, which mirrors last week’s performance, amid a lack of positive external drivers and potential renewed geopolitical tension after North Korea fired three short-range ballistic missiles on Saturday. As the drill is expected to last until Thursday, it may continue to unnerve investors.
The likelihood of a US government shutdown, if the Congress does not raise the US$19.8 trillion (RM84.74 trillion) debt ceiling by September 29, is another nearterm risk that could roil the financial markets. Chances of that happening is very minimal, but not remote
Thus, market sentiment could remain weak for the next few weeks until the debt ceiling is raised or market is convinced that an agreement would be reached.
The non-farm payrolls for last month and this month, and core personal consumption expenditures data, which will be released this week, could also point to moderation in hiring and subdued pricing pressure.
This week, investors will also follow closely China’s Purchasing Managers’ Index data. Strong numbers will vindicate exporters’ optimistic view that external demand for Malaysia’s products and services will remain strong in the second half of this year.
Locally, the ongoing secondquarter results reporting season, which will conclude on Wednesday, could act as an immediateterm catalyst. Nonetheless, expect no major excitement as so far about 68 per cent of the 95 companies that are being tracked have released their results with 61.5 per cent matching expectations, 27.7 per cent underperforming and 10.8 per cent outperforming.
Technical Outlook
Bursa Malaysia shares fell last Monday. The FBM KLCI shed 4.6 points to close at the day’s low of 1,771.62, off the early high of 1,775.80, as losers edged gainers 444 to 379 on cautious trade totalling 1.68 billion shares worth RM1.78 billion.
Shares rose the next day helped by mild bargain hunting interest in selective blue chips. The FBM KLCI ended 2.6 points up at 1,774.22 after oscillating in a tight range bordering high of 1,775.80 and low of 1,771.39 as gainers edged losers 419 to 385 on total trade of 1.77 billion shares worth RM1.88 billion.
Stocks extended sideways trade on Wednesday. The FBM KLCI eased 1.28 points to close at 1,772.94, off an early high of 1,777.18 and low of 1,770.95 as losers edged gainers 454 to 415 on higher turnover of two billion shares worth RM1.96 billion.
The local market reversed earlier losses to edge onto positive territory the following day, lifted by late buying interest on selected blue chip heavyweights. The index rose 2.56 points at 1,775.50, from a low of 1,768.52 and high of 1,775.76 as gainers edged losers 433 to 414 on a turnover of 2.13 billion shares worth RM1.98 billion.
Blue chips fell on Friday, dampened by profit-taking and selling interest amid cautious sentiments. The index slipped 6.33 points to close at 1,769.17, off an early high of 1,773.69 and low of 1,764.07 as losers beat gainers 546 to 323 on total turnover of two billion shares worth RM1.93 billion.
For the week, the FBM Emas Index slipped 18.22 points, or 0.14 per cent, to close at 12,608, while the FBM Small Cap Index eased 17.78 points, or 0.1 per cent, to 17,011.19 as small-cap stocks consolidated the previous week’s robust gains.
The daily slow stochastics indicator for the FBM KLCI hooked down in neutral ground, while the weekly indicator’s signal line flattened in the neutral zone. The 14day Relative Strength Index (RSI) indicator also hooked back down below the mid-point to register a negative reading of 47.53 after last Friday’s sell-off, while the 14week RSI hooked down to a weaker reading at 57.76.
On trend indicators, the daily Moving Average Convergence Divergence’s (MACD) signal line staged a bearish crossover to register a sell signal, while the weekly MACD indicator’s signal line weakened again to confirm downward momentum. The +DI and -DI lines on the 14-day Directional Movement Index trend indicator also crossed for a sell signal, but the ADX line stayed down to confirm a non-trending mode.
Conclusion
As almost all technical indicators for the local benchmark index turned negative following last Friday’s sell-off on higher selling momentum, the local stock market is likely to correct further in this short three-day trading week.
Trading momentum should be slower with most market players away for the holidays, which can aggravate losses, with fewer buyers around to cushion downside.
On the index, a confirmed breakdown below the 100-day moving average level at 1,766 would accelerate correction to stronger support at 1,729, matching a key support in April, while the next major support would be the 1,700 psychological level. Immediate resistance remains at 1,782, with the upper Bollinger band matching the recent high, followed by the June 16 peak of 1,796.
The ongoing second-quarter results reporting season, which will conclude on Wednesday, could act as an immediateterm catalyst.