REBOUND LIKELY TO RESUME THIS WEEK
THE local blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) recovered from a sell-off to a fresh six-month low mid-last week, after foreign selling eased and was offset by a sharp rally on Tenaga Nasional Bhd (TNB), fuelled by a recordhigh dividend payout, and optimism for goodies in the 2018 Budget.
Week-on-week, the FBM KLCI gained 5.48 points, or 0.31 per cent, to close at 1,746.13, with gains on TNB (+64 sen), PPB Group Bhd (+26 sen), Hong Leong Bank Bhd (+26 sen) and Petronas Gas Bhd (+22 sen) offsetting losses on British American Tobacco (-RM1.86), Genting Malaysia Bhd (-21 sen) and IHH Healthcare Bhd (-18 sen). Average daily traded volume and value shrank mildly last week to 2.59 billion shares worth RM2.15 billion, compared with the 2.96 billion shares and RM2.32 billion average the previous week, as trading momentum slowed marginally.
Rebound in the FBM KLCI on Friday should be a positive driver to sustain the rebound momentum this week. As widely expected, the 2018 Budget was an expansionary budget (totalling RM280.2 billion) with a lower fiscal deficit of -2.8 per cent versus 3 per cent this year, but adequate to generate a resilient gross domestic product growth forecast of five to 5.5 per cent.
Compared with previous budgets, it appeared to be more inclusive, addressing the concerns and needs of a wider group of people.
Construction players will remain key beneficiaries of the budget as they will not only benefit from the RM46 billion in development expenditure, but also continue to reap the benefit from more than RM200 billion worth of projects over the next 10 years.
Various incentives for the B40 and a reduction of two percentage points in the first three individual income tax band could be positive for consumer, breweries, and tobacco stocks while the specific Goods and Services Tax exemptions should be cash flow positive for aviation and selective oil and gas players.
Prospect for a rebound is not far-fetched on the back of sound economic data and recovery in corporate earnings.
On the economic front, Malaysia’s September trade number this week is expected to come within expectations with exports and imports expected to grow by 20.6 and 20 per cent year-on-year, respectively. China will release its October Purchasing Managers’ Index data that should show continued expansion at above 50-point threshold.
Technical Outlook
The local benchmark index staged a mild rebound last Monday. The FBM KLCI ended up 0.82 point at 1,741.47, off an early high of 1,744.86 and low of 1,741.38 as losers edged gainers 453 to 434 on total turnover of 2.72 billion shares worth RM1.95 billion. The FBM KLCI slumped to a six-month low the next day. The index fell 5.33 points to close near session lows at 1,736.14, off an early high of 1,745.48 as losers trashed gainers 599 to 276 on cautious turnover of 2.48 billion shares worth RM2.12 billion.
Blue chips rebounded from a fresh six-month low on Wednesday. The FBM KLCI rose 2.91 points to close at 1,739.05, off an earlier low of 1,733.67 and high of 1,740.51, but losers beat gainers 467 to 362 on moderate trade totalling 2.46 billion shares worth RM1.88 billion.
However, the local market slipped back into sideways consolidation the following day. The key index slid 2.25 points to end at 1,736.80, off an opening high of 1,740.84 and low of 1,734.93 as gainers led losers 420 to 383 on cautious turnover of 2.52 billion shares worth RM2.12 billion.
A sharp rally on TNB lifted the benchmark higher on Friday. It surged 9.33 points to settle at 1,746.13, off an early low of 1,739.89 and high of 1,751.50 as gainers led losers 511 to 344 on higher turnover totalling 2.75 billion shares worth RM2.66 billion.
The trading range for the bluechip benchmark index last week was 17.83 points, compared with the 18.66-point range the previous week, after it bounced back sharply from a fresh six-month low mid-last week. For the week, the FBM Emas Index added 37.82 points, or 0.3 per cent, to close at 12,551.61, while the FBM Small Cap Index increased 72.46 points, or 0.42 per cent, to 17,318.44 as small-cap stocks remained resilient backed by active rotational buying interest.
A buy signal was triggered on the daily slow stochastics indicator by the sharp rebound on Friday on the FBM KLCI, suggesting further rebound upside early this week, while the weekly stochastics’ signal line is flattening in the oversold region. The 14day Relative Strength Index (RSI) indicator rose to a bullish reading of 41.75 helped by last Friday’s strong bounce, while the 14-week RSI hooked up to a positive reading of 45.83 to reinforce the positive momentum on the daily indicator.
On trend indicators, the signal line on the daily Moving Average Convergence Divergence (MACD) is hooking up to mirror positive momentum indicators, but the weekly MACD position stayed bearish. In the meantime, the +DI and –DI lines on the 14day Directional Movement Index (DMI) trend indicators were contracting steeply towards each other, with potential to crossover for a short-term buy signal on further strength this week.
Conclusion
With bullish readings on technical momentum and trend indicators emerging after last Friday’s sharp rebound on the local benchmark index, led by a daily stochastics buy signal, a bullish reversal is possible this week. Moreover, given the many goodies in the 2018 Budget, investors should feel more assured that economic growth would remain resilient next year.
In the meantime, this week, a convincing break out on the index above immediate overhead resistance from the October 2 pivot low of 1,750 will improve upside momentum towards 1,768, the 100-day moving average, while tough hurdle is seen from the August 8 peak of 1,782, followed by the double-top peak of 1,793 and 1,796. On the downside, stronger support below the recent pivot low of 1,733 will be the April low of 1,729, and subsequently 1,700. The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
Prospect for a rebound is not far-fetched on the back of sound economic data and recovery in corporate earnings.