Budget to the rescue?

REVIEW: Against a positive US market backdrop the previous Friday, Bursa Malaysia shares kicked off the week on a steaider note, with the FBM KLCI rising 3.8 points to 1,759.12, extending the previous session’s gains on follow-through bargain hunting interest.

Blue chips led the way, encouraged by a solid regional trend. Elsewhere, second and lower liners also edged up amid greater participation from retail investors.

But unlike the overseas performance, the local bourse had a muted response as trading soon turned lacklustre with most investors adopting cautious approach while foreign funds continue to unload.

Hit by capital outflow, the key index retraced from an intra-day high of 1,759.31 in early business to a low of 1,7549.49 in the afternoon, the worst level since April 21, before some buying in the late hours helped the market trim losses.

At the final bell, the local bourse eased 0.95 of a point to 1,754.37 in sluggish trading on Monday.

Based on the daily chart, the FBM KLCI had violated the concrete support floor of 1,750 points during intra-day session on Monday, thus triggering a negative breakdown.

Although tentative at that momentum, a negative breakdown usually will open the doors for more downward spiral in the immediate term.

Hence, cautious mood prevailed, with the key index opening down 0.93 of a point to 1,753.44 the next day although Wall Street set another record and crude oil prices sustained the upward thrust on extended buying due to supply worries after news reported Iraqi forces had seized the oil-rich city of Kirkuk from the Kurdish fighters.

Elsewhere, regional markets continued to do well while Japan’s Nikkei 225-share Average touched a fresh level in more than two decades, as upbeat Chinese data drove optimism about the world’s second-largest economy. But they are not helping Bursa Malaysia this time around.

While persistent foreign selling dampened the broader market sentiment, the underlying tone of the local market deteriorated further in the afternoon, with more investors running to the sidelines looking for cover ahead of a public holiday.

In another lacklustre outing, the FBM

KLCI underperformed the global trend, drifting from an intra-day peak of 1,755.43 in the morning to end at the day’s low of 1,748.99, dropping 5.38 points on Tuesday, thus reaffirming the negative breakdown on Monday.

Bursa Malaysia was shut for Deepavali festival in mid-week but lived up to technical breakdown expectations on resumption of business after the break.

Though it opened above the flat line and rallied to a high of 1,750.59 shortly, the positive momentum was short-lived as fresh liquidation pressure soon emerged and pulled the market into the negative side, touching a low of 1,741.62 in the afternoon before bouncing off marginally to close down five points to 1,743.99 on Thursday.

In another lacklustre session, the FBM KLCI shed 3.34 more points to 1,740.65 amid extended liquidation pressure yesterday.

Statistics: Week-on-week, the benchmark index lost 14.67 points or 0.8% to 1,740.65 yesterday, compared with 1,755.32 on Oct 13.

Total turnover for the four-day holiday-shortened week amounted to 11.830 billion shares valued at RM9.307bil, compared with 16.332 billion units worth RM10.052bil changed hands during the regular previous week.

Outlook: Despite the bullish overseas trend, Bursa Malaysia extended the correction mode, with the FBM KLCI falling to a six-month low during intra-week session amid persistent liquidation pressure.

Based on the daily chart, the key index had slipped below the 1,750-point concrete floor on Tuesday and thereafter, retreated deeper into the red and violated the lowest 200-day simple moving average (SMA) line, triggering a double negative breakdown the past week.

In fact, the breakdown was not unexpected as we had cautioned investors a week ago that the market was treading at an unsafe area and may even go underwater should foreign funds continue to make their way back to the developed economy betting for a rate hike this year.

There it goes. The landscape of the market was somewhat damaged apparently and investors are advised to adopt a cautious stance in the immediate term pending a clearer picture emerging, as the breakdown usually does not bode well for the market going forward.

If there is any positive catalyst at home that could provide the cushion or lift the market higher this week, it will be the upcoming Budget 2018, which is widely expected to be friendly to investors and the rakyat.

Technically, indicators such as the daily slow-stochastic momentum index and its weekly peers as well as the 14-day relative strength index are painting a growing oversold condition, implying that a relief recovery may be around the corner.

However, the upside potential may be capped as the daily and weekly moving average convergence/divergence histograms are still bearish.

The FBM KLCI will now face significant resistance at 1,750 points, followed by 1,770 points and the heavy barrier at the 1,800point psychological level.

As for the downside, initial support is anticipated at 1,730 points, of which a crack will see the lower floor of 1,700 points becoming vulnerable.