Bracing for more corrections

REVIEW: Despite a steadier Wall Street overnight, Bursa Malaysia kicked off the week on a soft platform, with the FBM KLCI skidding 0.83 point to 1,759.10, extending the previous session’s declines amid follow-through liquidation.

The underlying tone of the market was decisively cautious while blue chips traded lacklustrely in early session, spooked by a steep fall in crude oil prices, which witnessed the black commodity tumbling US$1.29, or 2.8%, to US$44.23 per barrel the previous Friday amid doubts over efforts by producers to curb global oversupply.

Elswehere, most second and cheaper issues also drifted lower, with most retail players staying on the sidelines, adopting the “wait-and-see” attitude.

Though regional equities were doing quite well cheering the strength of the US economy, it was not helping the local bourse this time round.

In sluggish session, the key index flirted from an intra-day high of 1,760.44 in the morning to touch an intra-day low of 1,754.57 in late morning before turning sideways for the rest of the day on bargain-hunting interest alternated with profit-taking activity.

At the final bell, the local bourse lost 2.80 points to 1,757.13 on Monday.

After a strong rally, the bulls on Wall Street paused for a breather, with the Dow easing a small 5.82 points to 21,408.52 in overnight session owing to an apparent profit-taking activity but crude oil prices rebounded slightly, up 17 cents to US$44.40 a barrel on light bargain-hunting nibbling.

In the Asia-Pacific, markets sustained the upward thrust into second day ahead of earnings while investors await Federal Reserve chair Janet Yellen’s testimony to the US Congress for clues on when the central bank would tighten monetary policy.

Taking the cue from a firmer regional trend and the recovery in the black commodity, the local bourse attempted to move higher after struggling the past couple of days.

But it was not successful, as buying momentum was offset by sporadic selling pressure and because of that, the FBM KLCI see-sawed within a fairly tight range, between an intra-day high and low of 1,758.27 and 1,752.74 throughout before ending down 2.10 points to 1,755.03 in another lethargic session on Tuesday.

While a fresh rally in crude oil prices boosted energy firms in Asia the next day, the underlying tone of most markets around the world was somewhat cautious after two days of strong gains, as new revelations about Donald Trump’s Russia links undermined investors’ confidence.

At home, Bursa Malaysia continued to consolidate in the absence of compelling leads on the horizon, with the key index appearing in great danger of slipping below crucial the 100-day simple moving average (SMA) line, going forward.

Fortunately, the local bourse avoided another breakdown, as a last-minute magic touch helped lift the FBM KLCI from an intra-day low 1,751.59 to settle up 2.21 points to 1,757.24 in mid-week, snapping a threeday losing streak.

The bulls continued to push overseas equities higher on Thursday amid follow-through support from investors after the Federal Reserve indicated it would take a gradual approach to hike US interet rates, underpinned further by the recovery in crude oil prices.

In an unprecedented move, Bursa Malaysia went the opposite way, as persistent profit-taking activity ruled and losses in certain blue chips dragged the key index down 3.46 points to 1,753.78.

In another lacklustre session, the FBM KLCI eked out a small positive note, up 1.22 points to 1,755.00, thanks to a bout of late buying in select quality issues yesterday.

Statistics: On a Friday-to-Friday basis, the principal index declined 4.93 points, or 0.3% to 1,755.00 yesterday, versus 1,759.93 on July 7. Total turnover for the week was 9.299 billion units worth RM9.291bil, against 8.009 billion shares amounted to RM8.525bil done previously.

Outlook: Bursa Malaysia extended the correction process, with the FBM KLCI posting losses for the fourth consecutive week due to persistent profit-taking activity.

Unlike the bullish offshore tone, the local bourse was clearly underperformed for no apparent reason the past week and based on the daily chart, the recent pullback of the market had resulted in the key index slipping slightly below the important 100-day SMA of 1,753 during intra-week session.

Although the latest breakdown is tentative, other unfavourable development, such as the sighting of a couple of negative crossings of the 14-day SMA and the 21-day SMA against the 50-day SMA, certainly will not bode well for the market but continuing to pressure the index. And because of that, Bursa Malaysia may encounter difficulty to come out of the rut, unless a new compelling catalyst emerges.

Technically, the daily and weekly indicators are not looking good either, suggesting stocks may stay in correction for another week on follow-through selling. If that happens, the lower support floor of 1,705, which is the 200-day SMA and the 1,700 points psychological level, will be in great danger.

To the upside, the key index will now face significant resistance at the 14-day SMA of 1,763, followed by the uppermost 50-day SMA of 1,772, of which a successful penetration of the latter resistance may propel the key index up to the 1,800 points area.