Breakdown suggests uptrend may be over

REVIEW: West Texas Intermediate traded on the New York Mercantile Exchange spiked a significant 86 US cents, or almost 2% to US$44.24 per barrel on Tuesday, the best level in more than a week amid bargain hunting and first half “window dressing” activity.

It was the fourth consecutive session of gains for the black commodity, boosted further by investors’ speculation that crude inventories in the US may decrease.

As expected, Bursa Malaysia, which is very sensitive to oil prices movement, reacted accordingly, with the bellwether FBM Kuala Lumpur Composite Index (FBM KLCI) jumping 7.74 points to 1,787.19 on resumption of business after the long weekend.

Sentiment was overwhelmingly positive while blue chips topped the winners board in early hours and very quickly, the key index hit a high of 1,788.87 points.

But unfortunately, the uptrend could not be extended, as jitters were quick to kick in after the meltdown in tech-heavy Nasdaq dragged Wall Street broadly and sharply lower overnight due to a delay in a key US healthcare reform vote.

Meanwhile, equities in the Asia-Pacific region traded lack-lustrely as traders fretted about the future of Donald Trump’s economic agenda after he struggled to get the healthcare bill passed.

In addition, a weaker ringgit against the greenback sent more market makers running to the sidelines.

In the absence of compelling leads, the key index tracked global losses, reversing from earlier sharp gains to reach an intra-day low of 1,770.78 in late trade before ending at 1,771.23, dropping 8.22 points on Wednesday, also the first business day for the week.

The local stock market was under tremendous stress following the steep pullback, as the key index risked breaking down from the 50-day simple moving average (SMA) of 1,700 on follow-through liquidation action if global sentiment were to deteriorate further the next day.

Luckily, the bulls on Wall Street returned and bid the closely-followed Dow up 143.95 points to 21,454.61 while the S&P 500-share Index scored its biggest one-day percentage gain in nearly two months, as stocks in the financial and technology sectors rose sharply after the Federal Reserve agreed to plans by all 34 large US lenders seeking to provide big payouts to shareholders after passing stress tests.

In Asia, equities followed Wall Street up, spiking as much as 1.2% amid fresh buying momentum but unlike the overseas peers, trading at home clearly underperformed, with the FBM KLCI giving up early strong advances to finish almost flat, just gaining a minor 0.13 point to 1,771.36 on Thursday.

After a short pause, overnight Wall Street turned ugly once again, as the recent meltdown in technology shares deepened due to worries about valuations.

As usual, Asian markets were hit by the dismal performance in US equities.

At home, Bursa Malaysia was not spared despite crude oil prices sustaining their recovery to a two-week high level and the ringgit appreciating slightly against the greenback.

In lacklustre trade, the key index slumped 7.69 points to 1,763.67 on extended correction yesterday.

Statistics: Week-on-week basis, the benchmark index shed 15.78 points, or 0.9% to 1,763.67 yesterday, compared with 1,779.45 on June 23.

Total turnover for the three-day holiday-curtailed week amounted to 4.3 billion shares valued at RM5.72bil, against 8.379 billion units worth RM9.830bil traded during the regular previous week.

Outlook: Bursa Malaysia continued to stay in correction mode, with the FBM KLCI posting losses for the second straight week in the absence of compelling leads on the horizon and limited interest while many investors were still away on extended holidays.

Other factor weighing the local bourse could be investors’ worries about the rise in interest rates globally, as a slew of hawkish comments from central banks around the world signalled the beginning of the end of ultra-loose monetary policy.

As a result, the FBM KLCI violated the 50-day SMA during intra-day week trading and based on the daily chart, this is the first time in six month the key index had fallen below this important line.

Theoretically, this type of negative crossings does not bode well for the market ahead, as it may suggest that the upward thrust of the FBM KLCI from the 1,616.54 points level on Dec 23, last year to a high of 1,796.75 points on June 16, may be over and because of that, investors are advised to adopt a cautious stance in the immediate term.

Another unfavourable outing next Monday will further confirm that this breakdown is real and most likely, drag the market lower on extended correction.

Technically, the daily slow-stochastic momentum index and the 14-day relative strength index are screaming oversold condition, indicating a rebound may be around the corner.

Hopefully, any recovery that comes by is powerful enough to drive the key index back to above the 50-day SMA and keep the bulls alive.

A crack of the 100-day SMA line, resting at 1,747 points will drag the key index down to the 1,730 points. In this case the 1,700 points level will become vulnerable.

Resistance can be expected at 1,780 points, followed by the 1,800 points psychological level, a heavy barrier.