POTENTIAL FOR TECHNICAL REBOUND

THE FTSE Bursa Malaysia KLCI (FBM KLCI) tumbled to a fresh three-month low last

week.

This is as weak economic data from Europe and the inverted United States Treasury bond yield curve, which is when shortterm rates rise above the longerterm counterpart, signalled an imminent economic recession in the US, and Bank Negara Malaysia’s weaker growth guidance dampened market sentiment.

However, an oversold rebound last Friday, aided by fresh optimism for a lasting deal from USChina trade talks, helped sentiment, but lingering global growth worries, coupled with weaker domestic growth outlook, checked gains ahead of the weekend.

The FBM KLCI tumbled 23.03 points, or 1.38 per cent, week-onweek to 1,643.63, with gains on Nestle Bhd (+60 sen), PPB Group Bhd (+58 sen) and Kuala Lumpur Kepong Bhd (+46 sen) overshadowed by corrections in Public Bank Bhd (-70 sen), Genting Bhd (-28 sen), Press Metal (-21 sen), Maxis Bhd (-20 sen), Genting Malaysia Bhd (-18 sen), and Axiata Group (-12 sen). Average daily traded volume and value deteriorated further to 2.35 billion shares and RM1.82 billion, respectively, compared with 2.89 billion shares and RM1.96 billion average the previous week, as strong trading momentum persisted in lower liners and small caps, despite the correction on the index.

Fundamentally, nothing has changed so far after market sentiment was roiled by global economic weakness, the US-China trade war and Brexit, but we may be in for a technical rebound in the FBM KLCI this week after the steep correction over the last few weeks.

News that US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin have made good progress in their meetings with Chinese officials in Beijing could excite global equities.

On the economic front, con sensus expectations are for some improvement in Malaysia’s February trade data that will be released on Thursday. Exports and imports are expected to grow by five and three per cent versus January’s 3.1 and one per cent year-on-year, respectively.

Technical Outlook

The local benchmark index slumped last Monday. The FBM KLCI tumbled 17.51 points, or one per cent, to settle at 1,649.15, off an early high of 1,654.26 and low of 1,648.06 as losers swarmed gainers 684 to 191 on total turnover of 2.78 billion shares worth RM1.73 billion. Blue chips ended mixed in cautious trade the next day.

The FBM KLCI closed up 0.79 points at 1,649.94, after moving between early high of 1,653.58 and low of 1,647.11 as losers edged gainers 373 to 367 on lower turnover of 2.47 billion shares worth RM1.77 billion.

Index heavyweights resumed their correction on Wednesday. The FBM KLCI shed 7.21 points to close at 1,642.73, off an opening high of 1,650.22 and low of 1,641.89 as losers edged gainers 404 to 393 on reduced turnover of 2.07 billion shares worth RM1.71 billion.

Blue chips ended softer on the subsequent day. The FBM KLCI slid 1.4 points to settle at 1,641.33, after oscillating between 1,645.21 and 1,638.69 as losers beat gainers 448 to 338 on moderate turnover of 1.93 billion shares worth RM1.66 billion.

The local market staged an oversold rebound on Friday, but lingering global growth worries coupled with the weaker domestic growth outlook checked gains ahead of the weekend, while keen trading interest focused on oil and gas stocks due to the resilient global crude oil price trend. The index gained 2.3 points to close at 1,643.63, off an earlier high of 1,649.60 and low of 1,639.26 as gainers led losers 478 to 337 on higher turnover of 2.47 billion shares worth RM2.24 billion.

Trading range for the local blue-chip benchmark index last week shrank to 15.57 points, compared with the huge 37.88 points range the previous week, after a gap-down selloff last Monday pressured the benchmark to a fresh three-month low. For the week, the FBM Emas Index lost another 129.33 points, or 1.11 per cent to 11,553.84, while the FBM Small-Cap Index fell 94.52 points, or 0.74 per cent, to 12,711.30, as small-cap stocks eased back into profit-taking corrections.

After last week’s correction, the daily slow stochastics momentum indicator for the FBM KLCI re-hooked downwards deep into oversold territory, while the weekly indicator’s trigger line also bent down.

On the 14-day Relative Strength Index (RSI) indicator, it registered a mild hook-up reading of 32.46 given last Friday’s rebound, but the 14-week RSI down trended down to a more bearish reading of 36.00.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) expanded its negative decline, while the weekly MACD’s signal line has hooked down to suggest a sell signal on further deterioration in trend momentum. In the meantime, the –DI and +DI lines on the 14-day Directional Movement Index trend indicator retained a bearish expansion, with the ADX line rising above 25 to signal a confirmed downtrend.

Conclusion

Last week’s deep correction on the local benchmark appears a bit overdone, which drove technical momentum indicators into excessively oversold conditions. Hence, a technical rebound is due this week, which will need improving sentiment to sustain.

In the meantime, on the external front, increase in optimism over US-China trade talks and the recent dovish pivot in the Federal Reserve's monetary policy stance should help support recovery from the recent selloff.

Important index pivot supports are at last Thursday’s low of 1,638, next will be the December 2018 low of 1,626, while stronger support is from the 1,600 psychological level. Meanwhile, immediate resistance will be from the mid Bollinger band now at 1,671, followed by the recent high of 1,694, and stronger hurdle from the 200-day moving average level at 1,720.

Fundamentally, nothing has changed so far after market sentiment was roiled by global economic weakness, the USChina trade war and Brexit, but we may be in for a technical rebound in the FBM KLCI this week after the steep correction over the last few weeks.

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