MORE SIDEWAYS CONSOLIDATION LIKELY

AS anticipated, the bluechip benchmark FTSE Bursa Malaysia KLCI Index (FBM KLCI) went into a shallow profit-taking consolidation last week, which was critical to neutralise extreme overbought momentum.

Despite the buoyant United States stock markets, which held at record highs, profit-taking amid heavy deliveries and settlements from recent active trade on small caps weighed down the broader market. Nonetheless, bargain hunters returned to nibble ACE Market and penny stocks, especially in the oil and gas sector, ahead of the weekend.

For the week, the FBM KLCI added 6.16 points, or 0.34 per cent, to 1,828.83, as gains on Nestle Bhd (+RM1.90), Genting Bhd (+32 sen), Digi.com Bhd (+14 sen) and RHB Bank Bhd (+12 sen) overcame losses on Petronas Gas Bhd (-80 sen) and Petronas Dagangan Bhd (-34 sen). Average daily traded volume moderated to 5.06 billion shares worth RM3.19 billion, compared with 5.42 billion shares worth RM3.82 billion in the previous week as healthy buying momentum sustained on small caps and ACE Market stocks.

Partial shutdown of the US government could lead to some volatility in the US equity markets this week, especially after the steep rallies that saw the S&P 500 and Nasdaq close at record highs again on Friday.

There could be a knee-jerk reaction to this when the FBM KLCI opens today. It should be regarded as just an extension to recent consolidations after the steep rally since last month.

Overall impact of the US shutdown on FBM KLCI this week is expected to be muted or really insignificant based on what transpired after a similar shutdown in 2013.

Domestically, investors’ focus will be on the monetary policy meeting on Thursday with consensus expectations pointing towards a hike of 25 basis points to 3.25 per cent in the Overnight Policy Rate. Many believe the hike is warranted given the strong gross domestic product growth and the steady rise in crude oil prices.

That aside, the showcasing of 60 companies listed on Bursa Malaysia in the “Invest Malaysia Kuala Lumpur” event tomorrow and Wednesday could attract interest in some of these stocks.

Technical Outlook

Blue chips ended higher last Monday. The FBM KLCI climbed 3.24 points to close at 1,825.91, after oscillating between early low of 1,824.56 and high of 1,827.85, but losers beat gainers 685 to 378 on active trade totalling 5.4 billion shares worth RM3.3 billion. Profit-taking forced blue chips into consolidation the next day.

The FBM KLCI ended flat at 1,826.03, off an early low of 1,818.64 and opening high of 1,827.68 as losers beat gainers 765 to 324 on higher turnover of 6.52 billion shares worth RM3.37 billion.

The local benchmark steadied on buying support in selected heavyweights on Wednesday. The FBM KLCI closed up 2.6 points at the day’s high of 1,828.63, off an early low of 1,821.54, but losers beat gainers 678 to 321 on lower turnover of 4.97 billion shares worth RM2.79 billion.

The FBM KLCI edged lower the following day. It lost 7.03 points to end at 1,821.60, off a high of 1,831.32 and low of 1,821.21 as losers thrashed gainers 764 to 274 on turnover totalling 4.59 billion shares worth RM3.28 billion.

Market momentum recovered on Friday, as bargain hunters returned for speculative rotational plays on low-priced penny and ACE Market stocks, which picked up steam to lead the broader market higher. The index regained 7.23 points to end at the day’s high of 1,828.83, off an earlier low of 1,821.68 as gainers led losers 518 to 446 on slower turnover of 3.83 billion shares worth RM3.19 billion.

Trading range for the local blue-chip benchmark index last week shrank further to 12.68 points, compared with the 27.57point range in the previous week, as heavyweight blue chips eased into narrow range trade on prolonged profit-taking consolidation. For the week, the FBM Emas Index eased 26.78 points, or 0.2 per cent, to 13,195.82, while the FBM Small Cap Index tumbled 452.63 points, or 2.5 per cent, to close the week at 17,391.08, adversely affected by heavy liquidation of trading positions.

Following last week’s narrow profit-taking consolidation, the daily slow stochastic momentum indicator for the FBM KLCI eased back to the borderline overbought level, but the weekly indicator’s signal line continued its climb into the extreme overbought zone.

The 14-day Relative Strength Index (RSI) indicator had neutralised its overbought momentum and was hooking up with a high reading of 68.99 as of last Friday, while the 14-week RSI inched higher for an initial overbought reading of 71.92.

On the other hand, the daily Moving Average Convergence Divergence (MACD) trend indicator is set to trigger a sell on further weakness, but the weekly MACD indicator’s bullish bias stayed intact to offset the bearish daily signal.

The +DI and –DI lines on the 14day Directional Movement Index trend indicator continued contracting to suggest weakening upward momentum, but the rising ADX line suggests a valid uptrend.

Conclusion

Since technical momentum indicators have yet to fully neutralise their overbought condition following last week’s shallow profit-taking dip, coupled with a fresh daily MACD sell signal, more sideway consolidations are expected this week to flush out overbought momentum. The resumption of support building and absence of peak trading volumes will be preferred to promote a more sustainable uptrend going forward.

Important immediate uptrend supports for the index are now at 1,820, then 1,800 and 1,796, the breakout level, while immediate resistance remains at the recent high of 1,840, matching the 123.6 per cent FP of the November 2016 low to the breakout level, next will be 1,867, the April 2017 peak matching the 138.2 per cent FP, followed by the all-time high of 1,896 on July 2014.

Domestically, investors’ focus will be on the monetary policy meeting on Thursday with consensus expectations pointing towards a hike of 25 basis points to 3.25 per cent in the Overnight

Policy Rate.