TRADING LIKELY TO REMAIN CHOPPY

THE FTSE Bursa Malaysia KLCI (FBM KLCI) managed to latch on moderate gains last week, as investor confidence improved slightly after the announcement that Malaysia’s economy grew faster than forecast last year.

Market sentiment was also boosted by improvement in key regional markets led by the strong performance from Wall Street as traders waded back into the market, hunting for bargains amid signs of stability.

For the week, the FBM KLCI added 1.01 per cent to 1,838.28, with gains on Nestle (+RM3.30), Hong Leong Bank (+32 sen) and Genting Bhd (+23 sen) accounting for more than half of the index’s rise. Average daily traded volume was 1.61 billion shares worth RM1.94 billion, compared with 3.13 billion shares worth RM3.28 billion in the previous week, as trading activity slowed with most investors staying sidelined ahead of the Chinese New Year (CNY) festival break.

Historically, the FBM KLCI showed strong tendency to rally post-CNY period. This could be attributed mainly to institutional funds taking positions in blue chips to benefit from the final dividend payout post fourth-quarter results. It’s anybody’s guess whether this trend will continue this year amid prevailing jitteriness over the strong US economic data.

Trade wars which could erupt subsequent to President Donald Trump’s threat last week to impose quotas on imports of aluminium and steel is a faster route to global recession, if any of the affected countries retaliate with counter measures. China has already cautioned that it will pursue measures to protect its own rights.

Thus, while the local market could remain resilient from buying support ahead of the 14th General Election and resume its upswing, the recent volatility is likely to persist for the rest of this year.

While investors will be looking for clues in the Federal Open Market Committee meeting minutes last month that will be released on Thursday, it will be more interesting to see what will happen in the March 20-21 Federal Reserve meeting when its new chairman chairs his first meeting.

As the upside for the FBM KLCI index appears limited, for exposure, investors should pursue a bottom-up approach by cherrypicking value plays and move on to defensive picks as we approach the second half of this year.

Technical Outlook

Blue chips rose on Monday, helped by utility, banks and oil and gas heavyweights and regional gains as US stock index futures recovered further in Asian trade. The FBM KLCI ended up 10.35 points at 1,830.17, off an early low of 1,824.89 and high of 1,834.45, but losers edged gainers 484 to 453 on slow turnover of 1.8 billion shares worth RM2.26 billion.

Stocks ended slightly higher the following day, shored up by overnight Wall Street and regional gains on optimism over the Trump administration’s US$200 billion infrastructure plan. The index added 2.85 points to settle at 1,833.02, after oscillating between early high of 1,835.17 and low of 1,830.28, as gainers led losers 495 to 409 on reduced turnover of 1.61 billion shares worth RM2.43 billion.

The local stock market edged higher on Wednesday, boosted by the better-than-expected fourthquarter gross domestic product growth of 5.9 per cent, but buying momentum stayed cautious ahead of the release of US January inflation data as investors refrain from committing ahead of the CNY holidays.

The FBM KLCI added 1.91 points to settle at 1,834.93, off the high of 1,837.80 and low of 1,829.71, as gainers led losers 580 to 338 on slightly better turnover of 1.93 billion shares worth RM1.98 billion.

Blue chips stayed range bound on cautious trade the next day, as most investors remained on the sidelines ahead of the CNY, while key regional markets extended rebound following the overnight rally stateside. For the half-day trading session, the FBM KLCI added 3.35 points to close at 1,838.28, off a high of 1,842.73 and low of 1,837.98, as gainers edged losers 544 to 213 on total turnover of 1.11 billion shares worth RM1.07 billion.

Trading range for the key index was 17.84 points, compared with 61.54 points in the previous week, as bargain-hunters returned to stabilise stocks at cheaper levels.

The daily slow stochastic momentum indicator for the FBM KLCI is hooking up in the neutral zone, signalling reduced bearish momentum, but the weekly indicator trigger line is hooking down in overbought territory and is set to trigger a sell. The 14-day Relative Strength Index (RSI) rose to 54.66, while the 14-week RSI closed at 60.42 on Friday.

Meanwhile, the daily Moving Average Convergence Divergence (MACD) signal line inched lower to indicate increasing downward momentum, while the weekly MACD indicator showed initial weakness on its upward trajectory. The +DI and –DI lines on the 14-day Directional Movement Index (DMI) expanded from each other, while the ADX line has turned down, signalling a weaker trending mode.

Conclusion Momentum indicators for the FBM KLCI issued mixed signals following last week’s cautious rebound, with weak buying momentum and most market players staying sidelined suggesting that the near-term direction remains uncertain.

Choppy trading conditions should linger, with concerns that higher-than-expected US inflation could accelerate rising interest rates and overshadow the rosy economic outlook to dampen investors risk appetite.

On the FBM KLCI, immediate resistance will be 1,840, mirroring the January 9 high, with the February 2 peak of 1,880, acting as a formidable upside hurdle.

Monitor the crucial resistanceturn-support level at 1,796, the June 2017 peak matching the recent low which must hold to prevent further correction potential towards next support from 1,778, the 38.2 per cent Fibonacci Retracement (FR) of the 1,614 low of Nov 2016 to the recent 1,880 high. Failure of this support means that the 50 per cent FR at 1,747 should be tested for resilience.

As the upside for the FBM KLCI index appears limited, for exposure, investors should pursue a bottom-up approach by cherry-picking value plays and move on to defensive picks as we approach the second half of this year