INDEX LIKELY TO CONGEST SIDEWAYS

TRADING on Bursa Malaysia was rather choppy last week amid the Deepavali break, starting on a negative note as gaming stocks led heavy losses following the announcement of high casino and gaming taxes in the 2019 Budget.

Investors subsequently assessed the closely-watched US mid-term election results that temporarily boosted sentiment, but selling resumed on fears over less rosy growth in China, following the release of the country’s economic data.

Week-on-week, the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slipped 5.78 points, or 0.3 per cent, to 1,708.09, with gains on Tenaga (+30 sen), Axiata (+15 sen), DiGi.com (+18 sen) and Maxis (+14 sen) overshadowed by losses in Genting Malaysia (-96 sen), Genting Bhd (-42 sen), CIMB (-11 sen) and Maybank (-11 sen).

Average daily traded volume stood at 2.05 billion shares worth RM2.47 billion, compared with 2.3 billion shares worth RM1.92 billion in the previous week.

In the absence of fresh catalyst, anticipate the FBM KLCI to congest sideways this week while investors await the release of thirdquarter gross domestic product (GDP) data on Friday.

Growth is expected at 4.7 per cent year-on-year (YoY), slightly stronger than the second quarter’s 4.5 per cent due to positive impact on consumption and private investment subsequent to the three-month tax holiday.

Nonetheless, the improvement is unlikely to sustain in the final quarter due to various domestic and external factors. Malaysia’s GDP growth is expected to be around 4.6 per cent this year, slower than 5.9 per cent last year. It is anticipated to to improve to 4.8 per cent next year.

While the third quarter GDP growth could provide a temporary boost to sentiment and support for the FBM KLCI, selling pressures could resurface towards the tail end of next week as the focus shifts to the impending talks between United States and China presidents when they meet in Argentina on November 30.

If the meeting progresses well, we should witness a year-end rally taking shape as we enter December. If anything to the contrary happens, the rally could be weak or we could be staring at further selling pressure as investors dump equities in anticipation of higher global inflation and slower economic growth.

Negativity aside, fourth quarter (Q4) is always a stronger period for the FBM KLCI due to window-dressing activities and December holds the record for the highest probability of 82.9 per cent for a month-on-month gain. Q4s also have a 70.7 per cent probability for the index to register quarter-on-quarter growth.

Nevertheless, possibilities for good returns to repeat in this year’s Q4 are subdued due to the FBM KLCI’s lofty valuation vis-àvis its peers, potential escalation in trade war and the high likelihood of further weakening in ringgit. Any year-end rally could be mild. Thus, it is advisable for investors to remain defensive and cautious in their investment decisions.

Technical Outlook Bursa Malaysia shares fell on Monday with the FBM KLCI falling 5.07 points to close at 1,708.80, off an opening high of 1,720.07 and low of 1,699.60, as losers beat gainers 537 to 334 on improved turnover of 2.22 billion shares worth RM3.28 billion.

The market ended mixed on Wednesday as it reopened after the Deepavali break, as stocks gave up early gains. The index closed up 6.08 points at 1,714.88, near the day’s high of 1,715.98, helped by late gains on Nestle (+60 sen) and MAHB (+55 sen), off a low of 1,704.93 on higher turnover of 2.32 billion shares worth RM2.49 billion.

The FBM KLCI gained 6.54 points the following day to close at 1,721.42, off a high of 1,726.10 and low of 1,718.47 on total turnover of 2.28 billion shares worth RM2.28 billion.

Stocks fell on Friday, in line with regional losses. The FBM KLCI lost 13.33 points to close the week at 1,708.09 on reduced turnover of 1.65 billion shares worth RM1.8 billion.

Trading range for the key index was at 26.5 points last week, compared with 39.54 points in the previous week as it stayed rangebound with profit-taking and selling restricting recent gains.

Last Friday’s pullback forced a hook-down on the daily slow stochastics indicator for the FBM KLCI, while the weekly indicator slid further to the lower neutral region on easing downward momentum. The 14-day Relative Strength Index (RSI) indicator dipped back down for a weaker reading of 41.67, while the 14week RSI indicator leveled to a softer reading of 39.77 as of last Friday.

On trend indicators, while the daily Moving Average Convergence Divergence (MACD) retained a bullish signal on the back of the previous week’s strong rally, the weekly MACD still points to more downward momentum. On the 14-day Directional Movement Index (DMI) trend indicator, the +DI and -DI lines continue to contract towards each other on a leveling ADX line, signs of weakening in the present downtrend.

Conclusion

Given the absence of strong follow-through buying momentum backing the previous strong rally prior to last week, Bursa Malaysia is likely to fall back into consolidation mode, as technical momentum weakens again and external uncertainties persist. Further range-bound trading can be expected this week.

On the index, immediate resistance levels remain at 1,722, 1,742 and 1,762, the respective 61.8%FR, 50%FR and 38.2%FR of the rise from 1,657 low on June 28 to the 1,826.9 high of August 28, followed by 1,787, the 23.6%FR. Immediate support is retained at 1,700, while crucial supports remain at the 25 Oct low of 1,670 and then 1,657, the 28 June low.

Sector-wise, index heavyweights should continue to pause for sideways consolidation post2019 budget as external market uncertainties dominate, while construction-related stocks like Gadang, MRCB, Sunway Construction and UEM Sunrise may attract bargain-hunting interest at current depressed levels.

Given the absence of strong followthrough buying momentum backing the previous strong rally prior to last week, Bursa Malaysia is likely to fall back into consolidation mode, as technical momentum weakens again and external uncertainties persist.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.