Market risks breaking down
Backed by firmer commodity prices, Bursa Malaysia started out the week slightly above water, with the FBM Kuala Lumpur Composite Index (FBM KLCI) advancing 0.35 point to 1,771.39 on bargain hunting interest.
As usual, blue chips led the way in early business, but it was subdued later due to limited support from the big boys because the fresh exchange of barbs between North Korea and the US, prompting investors to adopt a cautious approach.
Elsewhere, most second and lower liners drifted lower, as an uninspiring performance in the Asia-Pacific region and a weaker ringgit against the greenback weighed on the local sentiment.
Given the dearth of market-stimulating leads, the key index subsequently moved sideways on sporadic buying alternating with intermittent profit-taking selling throughout the day, causing the key index to lose 1.9 points to 1,769.14 in range-bound trading on Monday.
Wall Street widened losses and technology-related shares tumbled on renewed selling the next day due to geopolitical uncertainty after North Korea’s foreign minister said US President Donald Trump’s tweets over the weekend were tantamount to a declaration of war.
In the region, stocks outside China and Hong Kong slumped against the backdrop of rising tensions on the Korean Peninsula.
Though crude oil prices spiked a hefty US$1.56 a barrel to US$52.22, the best level in five months and other commodities soared, they were not helping the local bourse this time round, as continuous depreciation of the local currency against the greenback kept most investors at bay.
Mirroring the frail offshore trend, the local bourse retreated from an intra-day high of 1,769.12 in early hours to a low of 1,761.21 in late morning, losing as much as 7.93 points before trimming losses in the afternoon to settle at 1,765.59, shedding 3.55 points in sluggish session on Tuesday.
There were no clues coming from the US, with the Dow falling for the third consecutive session and crude oil bulls pausing for a breather, as they awaited the release of Trump’s tax reform plan.
In Asia, Hong Kong, Singapore and Shanghai markets rose but Japan, South Korea and Australia fell, as investors were divided over the recent comments from Federal Chair Janet Yellen about the need to carry on gradual rate hikes.
Like the regional peers, Bursa Malaysia put up a mixed show.
While certain blue chips struggled, most second and lower liners posted gains on greater retail participation. Although the FBM KLCI lost 1.35 points to 1,764.24, advancers beat decliners by 401 to 376 in mid-week.
Thereafter, the local bourse stayed in consolidation mode and despite the Dow snapping its three-day losing streak and the black commodity rebounded, investors simply were not interested, as persistent weakness in the ringgit against the US dollar dampened investors’ mood.
In lacklustre trading, the key index shed 6.18 points on Thursday, thus carving out a negative signal.
And yesterday, Bursa Malaysia remained in correction mode, dropping an extra 2.48 points to 1,755.58 on follow-through selling.
Statistics: For the week, the principal index skidded 15.46 points, or 0.9% to 1,755.58 yesterday, versus 1,771.04 on Sept 22.
Turnover for the regular week was 12.695 billion units worth RM11.575bil, against 10.402 billion shares amounting to RM8.329bil done during the four-day holiday-shortened previous week.
Outlook: Bursa Malaysia fell for the second straight week, with the FBM KLCI touching the lowest level in more than two months.
The pullback was in line with our forecast, but the bearish tone caught many people by surprise.
Based on the daily chart, the local bourse recorded losses for 11 days and posted gains only for one day in the past 12 days.
Very clearly, the futile attempt to breach the 1,800 points psychological barrier on Sept 13, had brought about a sizeable negative impact on the market, exacerbated by increasing geopolitical tensions in the Korean Peninsula and funds moving back to the developed economy betting on a rate hike.
The absence of “window dressing” activity or book-squaring for the third quarter by fund managers and the depreciation of the ringgit against the greenback, also were not helping the local sentiment.
Generally, the rising interest rate is not good for risky asset, such as equities and if investors continue to fret on this matter and remain nervous about tensions on the Korean Peninsula, it may result in the FBM KLCI breaking down from the 1,750 points concrete floor going forward.
Technically, the daily and weekly moving average convergence/divergence histogram are sending out a negative signal, but other indicators such as the daily slow-stochastic momentum index and the 14-day relative strength index are screaming an oversold condition, implying that a relief recovery is due.
To the upside, the FBM KLCI is expected to face a great challenge at 1,800 points.
In the case of a breakdown from the 1,750 points, the lowest 200-day simple moving average, resting at the 1,735 points and the 1,700 points level, will become vulnerable.