CHOPPY TRADING LIKELY THIS WEEK
THE local benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) pulled back last week, adversely affected by the more hawkish tone from the United States Federal Reserve (Fed), which raised interest rates by 25 basis points.
The US central bank guided for two more rate hikes this year, shifting up the year’s dot plot from three to four rate hikes, which raised concerns that higher rates will impact global growth.
The local stock market traded for only three-and-a-half days last week, ahead of the Hari Raya holidays.
For the week, the FBM KLCI shed 16.54 points, or 0.9 per cent to 1,761.78, with falls in HLFG (-60 sen), Public Bank (-56 sen), Petronas Gas (-36 sen), CIMB (-35 sen) and MISC (-29 sen) contributing most to the loss.
Average daily traded volume and value last week slowed to 2.17 billion shares worth RM2.46 billion compared with 3.23 billion shares and RM2.84 billion, respectively, the previous week.
The FBM KLCI succeeded in erasing most of its losses last Thursday after the Fed gave a hawkish guidance by signalling two more hikes for the year.
However, the benchmark index’s ability to absorb foreign selling pressure was expected to be tested again this week with rising geopolitical tension contributing to the unwavering strength of the US dollar.
The greenback weakened initially post-last Friday’s announcement from the US to impose tariffs on US$50 billion (RM200 billion) worth of imports from China, but regained its strength after the European Central Bank (ECB) gave a dovish guidance by postponing its rate hike decision to next summer despite ending its bond-buying programme this December.
The market was expecting ECB to raise interest rates early next year. Euro’s weakness and US dollar’s strength will be amplified if the news about a rift among German’s ruling coalition over its migration policy is true.
The ongoing trade war will add to uncertainty. In a tit-for-tat move China published its retaliatory list on Saturday to impose tariffs on US$34 billion worth of imports from the US.
The FBM KLCI may remain under foreign selling pressure in the short term until there was clarity in not only external issues, but in domestic policy measures as well.
On the brighter side, any move by the Organisation of Petroleum Exporting Countries (Opec) and its non-Opec allies to maintain production cuts at Friday’s meeting is seen positive for crude oil price and ringgit.
Technical Outlook
The FBM KLCI edged lower on Monday as selected blue chips weighed on the market.
The index shed 2.52 points to close at 1,775.80, off an early low of 1,770.83 and high of 1,788.47, as losers edged gainers 488 to 404 on higher trade totalling 2.61 billion shares worth RM2.40 billion.
The local market extended losses the next day, with the index bogged down by selling interest in heavyweights while key regional markets remained muted as investors awaited details of the US-North Korea summit.
The FBM KLCI lost 11.64 points, or 0.66 per cent, to close at 1,764.16 as losers beat gainers 571 to 309 on moderate trade totalling 2.35 billion shares.
The benchmark index ended flat on Wednesday, with investors on the sidelines in tandem with muted regional peers as investors awaited the conclusion of the Fed’s monetary policy meeting.
The FBM KLCI inched down 0.59 points to 1,763.57 as losers edged gainers 469 to 397.
Trading momentum slowed during the half-day trading on Thursday, ahead of Hari Raya.
The index eased 1.79 points to close the abbreviated session at 1,761.78, off an early low of 1,745.45 and high of 1,762.22, as losers edged gainers 372 to 361 on total turnover of 1.61 billion shares worth RM3.02 billion.
Trading range for the blue-chip benchmark index shrank to 42.71 points last week compared with 55.67 points the previous week as buyers retreated amid profittaking from the recent sharp rally to the 1,800 level.
For the week, the FBM EMAS Index slipped 94.29 points, or 0.76 per cent, to 12,378.78, but the FBM Small Cap Index added 119.67 points, or 0.83 per cent, to 14,578.57 as small cap stocks benefited from selective bargain hunting.
On technical momentum indicators for the FBM KLCI, while the daily slow stochastic maintained its hook-up at the neutral region, the weekly indicator continued south.
The 14-day Relative Strength Index (RSI) indicator levelled off for a neutral reading of 38.89 following last Thursday’s rebound from an early sell-off, but the 14week RSI hooked back down for a weaker reading of 39.75.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) sustained a weak buy signal but the weekly MACD indicator’s signal line crossed below the mid-point to reinforce its bearish position. As for the 14-day Directional Movement Index (DMI) indicator, the DI and +DI lines resumed expansion on a levelling ADX line, which implies a pause on the current downtrend.
Conclusion
Conflicting signals from technical indicators for the FBM KLCI following last week’s correction suggest uncertainty in the near-term.
Investors can expect choppy trading this week.
On the external front, the hawkish tone from the Fed, which raised interest rates by 25 basis points and guided for four rate hikes instead of three this year, should be offset by the more dovish statement by the ECB that proposed a delay in raising rates even after ending its bondbuying programme by year-end.
Cautious investor sentiment should prevail for another week.
On the index, immediate supports remain at the recent intraday lows of 1,751, 1,738 and 1,725, with crucial support from the December last year’s low of 1,708.
Immediate resistance stays at 1,802, the recent pivot high matching the 50 per cent FR of the December 2017 low of 1,708 to the high of 1,896 this year, followed by the 38.2 per cent FR (1,824) and 23.6 per cent FR (1,852).
The FBM KLCI may remain under foreign selling pressure in the short term until there was clarity in not only external issues, but in domestic policy measures as well.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.