POSITIVE U.S. VIBE MAY LIFT SHARES

THE FTSE Bursa Malaysia KLCI (FBM KLCI) was stuck in narrow range-bound trade last week as key heavyweight blue chips consolidated amid lacking local leads, ignoring firmer external markets after United States lawmakers agreed to prevent another government shutdown.

Meanwhile, positive anticipation over high-level US-China trade talks in Beijing and stronger crude oil prices on deeper Organisation of the Petroleum Exporting Countries (Opec) production cut hopes buoyed oil and gas-related stocks.

Week-on-week, the FBM KLCI added 2.31 points, or 0.14 per cent, to 1,688.83, as gains on Petronas Dagangan (+44 sen), KLK (+28 sen), Axiata (+21 sen) and Dialog (+15 sen) overshadowed falls on Nestle (-40 sen) and Tenaga (-16 sen).

Average daily traded volume surged to 2.97 billion shares worth RM1.95 billion, compared with 1.64 billion shares valued at RM1.26 billion in the previous week, due to the substantial improvement in trading momentum as more investors returned from the Chinese New Year holidays.

Positive external undertone could underscore the revival of interest in the local equity market this week, which has been languishing in a range-bound trade since the beginning of this year.

While US and China have sent out positive feelers about the meeting in Beijing last week, we have yet to hear anything concrete on structural issues like intellectual property rights, technology transfer, cyber theft, currency and non-tariff barriers, etc.

Locally, the focus will be on the fourth-quarter results reporting season. So far, only about 20 per cent of the companies being tracked had reported their earnings, which were largely within expectations.

Nothing significant can be said about the outperformers but companies in the oil and gas sector stand out among the underperformers, which is consistent with observations in the third quarter of last year and the final quarter of 2017.

The rebound in crude oil prices this year has contributed to buying interest in the sector, which is expected to benefit from recovery in daily charter rates and higher capital expenditure in green field activities.

If supply continues to tighten and fears about trade war abate, we may witness further strengthening in crude oil prices, which should contribute positively to the ringgit’s strength and expansion in the FBM KLCI, vindicating a post-Chinese New Year rally which is sorely missing this year.

Technical outlook

Bursa Malaysia shares ended slightly firmer on Monday on cautious optimism ahead of another round of trade talks between US and China in Beijing. The FBM KLCI closed up 2.04 points near session highs at 1,688.56, off an early high of 1,689.97 and low of 1,681.64.

Blue chips stayed range-bound the next day on lack of local leads. The FBM KLCI ended down 1.15 points at 1,687.41, after moving between a high of 1,692.22 and a low of 1,683.73.

While blue chips extended sideways trade on Wednesday, renewed buying interest in oil and gas-related small caps fuelled by higher crude oil prices helped lift sentiment on the broader market. The FBM KLCI eased another 2.11 points to close at 1,685.30, after oscillating between high of 1,688.46 and low of 1,683.61.

Blue chips stayed range-bound the following day amid US-China trade talks in Beijing, while oil and gas-related small caps attracted keen rotational retail trading interest. The FBM KLCI rose 3.76 points to settle at the day’s high of 1,689.06.

Sustained strength in crude oil prices buoyed oil and gas-related stocks but the market eased on worries over slowing US economy after December retail sales fell sharply. The index closed flat on Friday at 1,688.83 (-0.23), off an early high of 1,693.85.

Trading range for the blue-chip benchmark index last week dwindled to 12.21 points, compared with 16.05 points the previous week, as key index heavyweights stayed in tight range-bound trading.

The FBM Emas Index added 24.75 points to 11,750.27, while the FBM Small Cap Index climbed 317.83 points to 12,670.18, helped by the burst of rotational buying interest in oil and gas-related small caps and lower liners.

The daily slow stochastic momentum indicator for the FBM KLCI eased to the lower neutral region, while the weekly indicator’s upward momentum continues to soften. The 14-day Relative Strength Index (RSI) indicator levelled with a reading at 51.87 last Friday, but the 14-week RSI reading ascended marginally to 43.40, against the previous week’s reading of 42.79.

As for trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line also levelled against the trigger line, but the weekly MACD retained a buy signal. The –DI and +DI lines on the 14-day Directional Movement Index (DMI) indicator stayed in expansion mode on a levelling ADX line, signalling a

Conclusion

While technical indicators stayed neutral due to the FBM KLCI’s tight range-bound consolidation last week, suggesting further consolidation in the near term, external markets continued to show improvement, shored up by cautious optimism over the US-China trade talks.

For this week, given the strong rebound on US stock markets last Friday, the positive vibe should spill over to lift the local market, with oil and gas-related lower liners expected to do well.

Immediate support for the index remains at 1,680, with better pivot supports from the June 2018 low of 1,657 and December 18 pivot low of 1,626.

Immediate resistance stays at the recent pivot high of 1,705, with better supports at 1,722, 1,742 and 1,762, the respective 61.8 per cent FR, 50 per cent FR and 38.2 per cent FR of the rise from 1,657 low on June 28 to the 1,826.9 high of August 28.

While key blue chips extend consolidation amid lacking local leads, oil and gas-related lower liners and small caps should continue to see active rotational interest given the renewed buoyancy in crude oil prices and positive news flows.

While key blue chips extend consolidation amid lacking local leads, oil and gas-related lower liners and small caps should continue to see active rotational interest given the renewed buoyancy in crude oil prices and positive news flows.

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