FBM KLCI LIKELY TO TREND SIDEWAYS
LOCAL fund buying on selected oil and gas, banking and telco heavyweights managed to lift the blue-chip benchmark, FTSE Bursa Malaysia (FBM KLCI), off fresh nine-month lows last week, also helped by Sime Darby Plantation recovery.
The much stronger-than-expected last month’s trade data from China and Japan’s thirdquarter Q3 gross domestic product (GDP) provided a lift to the mostly cautious local market.
Week-on-week, the FBM KLCI gained 3.39 points, or 0.2 per cent, to settle at 1,721.25, with gains on Hong Leong Bank (+86 sen), BAT (+70 sen), HLFG (+70 sen) and Petronas Dagangan (+30 sen) offsetting falls on IJM Corp (-23 sen), KLCCSS (-23 sen) and Astro (-12 sen).
Daily traded volume and value was at 1.76 billion shares worth RM2.41 billion, compared with 1.96 billion shares and RM3.17 billion the previous week.
The United States Federal Reserve is likely to raise its fund target rate by 25 basis points to between 1.25 per cent and 1.50 per cent on Wednesday.
Supporting the move will be the stronger-than-expected US non-farm payrolls for last month that rose by 228,000 versus expected 195,000, low unemployment rate of 4.1 per cent and average hourly wage that rose 2.5 per cent, although slightly lower-than-forecast 2.7 per cent.
The possible move has been priced in and should not cause any weakness in the benchmark index or ringgit.
If the US policymakers choose to defer the rate hike to next year, but chances are very slim, we should witness a relief rally contributing to the year-end window dressing and New Year rally.
Bigger concern would be the quantum and number of hikes next year.
The current indication is there would be three more hikes next year and two in 2019.
Investors would also be closely watching for clues on the European Central Bank (ECB) monetary policy direction.
No changes are expected in the ECB’s bond-buying programme, which will be halved from €60 billion (RM144 billion) to €30 billion starting next month, or interest rate/deposit rate that stands at zero per
cent/-0.4 per cent.
Technical Outlook
Blue chips ended lower on profit-taking activities on Monday, dragging the index down to a fresh nine-month low. The FBM KLCI lost 4.73 points to 1,713.13, off the opening high of 1,717.99 and low of 1,709.17, as losers trashed gainers 659 to 286 on cautious turnover totalling 1.8 billion shares worth RM2.57 billion.
The local market traded sideways for most of the following day’s session, before late fund buying on selected banking, telco and oil and gas heavyweights lifted the index sharply higher. The FBM KLCI surged 11.71 points to close at the day’s high of 1,724.84, off an opening low of 1,708.48, but losers beat gainers 624 to 298 on muted turnover of 1.83 billion shares worth RM2.23 billion.
The local index dipped on Wednesday following profit-taking interest on key banking heavyweights, in line with regional weakness.
The FBM KLCI shed 6.51 points to settle at 1,718.33, off an early high of 1,722.95 and low of 1,715.10, as losers beat gainers 454 to 380 on muted trade totalling 1.58 billion shares worth RM2.26 billion.
Blue chips closed slightly firmer the next day, lifted by recovery on Sime Darby Plantation and as local funds nibbled on index heavyweights. The FBM KLCI ended 0.72 point higher at 1,719.05, after oscillating between early high of 1,723.40 and low of 1,718.47, as losers edged gainers 455 to 388 on total turnover of 1.8 billion shares worth RM2.51 billion.
Stronger-than-expected last month’s trade numbers from China and Japan’s GDP in Q3 helped shore up markets in the region and spilled over locally, buoying the cautious market tone ahead of the weekend.
The index gained 2.2 points on Friday to end the week at 1,721.25, off a low of 1,718.88 and high of 1,724.59, as losers beat gainers 490 to 328 on a trade of 1.84 billion shares worth RM2.48 billion.
Trading range for the local blue-chip benchmark index last week was 16.36 points, compared with the 17.68 points range the previous week, as blue chips extended sideways consolidation near nine-month lows.
However, for the week, the FBMEMAS Index eased 62.91 points, or 0.5 per cent, to 12,345.40, while the FBM-Small Cap Index fell 309.3 points, or 1.8 per cent, to close the week at 16,478.58.
Last week’s mild rebound managed to lift the daily slow stochastic momentum indicator for the FBM KLCI further into neutral territory, while the weekly indicator hooked up in oversold territory.
The 14-day Relative Strength Index (RSI) indicator hooked up to a positive reading of 44.46 last Friday, while the 14-week RSI recovered to an improved reading of 38.42.
Meantime, the signal line on the daily Moving Average Convergence Divergence (MACD) trend indicator recovered further on the back of the previous week’s buy signal, but the weekly MACD indicator’s descent into negative territory sustained.
On the other hand, the +DI and –DI lines on the 14-day Directional Movement Index trend indicator contracted to suggest easing downtrend momentum.
Conclusion
While trend and momentum indicators for FBM KLCI showed recovery potential following last week’s mild rebound, the cautious buying momentum and trading sentiment persisted to check gains.
Hence, further sideways trading is anticipated pending more positive local catalysts to promote a sustained recovery ahead.
On the index, overhead resistance remains at 1,727 (61.8 per cent FR), followed by the 30-day and 50-day moving averages at 1,730 and 1,739, respectively, then 1,750, next will be 1,754, the 200day moving average. Crucial retracement supports stays at 1,705 (50 per cent FR) and 1,683 (38.2 per cent FR).
If the US policymakers choose to defer the rate hike to next year, but chances are very slim, we should witness a relief rally contributing to the year-end window dressing and New Year rally.