Technical recovery on the cards

The local bourse started out the week marginally firmer, with the FBM KLCI gaining 0.86 of a point to 1,743.14, rebounding from the previous session’s declines in the wake of fresh bargain-hunting interest.

Blue chips topped the winners board, and soon propelled the benchmark to as high as 1,746.72. Elsewhere, most second and lower liners also rose amid support from retail players while the ringgit appreciated against the greenback on greater risk appetite.

However, the positive momentum in early business could not be stretched any further, as a pullback in US markets overnight was simply not supportive.

Wall Street’s leading indicator, the Dow Jones Industrial Average shed 39.73 points to 23,422.21 the previous Friday due to worries about the future of promised corporate tax cuts following duelling plans unveiled by the Republican lawmakers.

Over on the New York Mercantile Exchange, crude oil prices retraced 43 cents to US$56.74 per barrel owing to apparent profit-taking selling after hitting the best level in more than two years recently.

An uninspiring performance in the AsiaPacific markets also was not helping the local sentiment.

In the absence of solid catalyst on the horizon, early buyers turned net sellers later, thus resulting in the key index giving up gains from mid-morning and traded sideways to marginally lower for the rest of the day.

At the final bell, the local market finished down 4.79 points to settle at the day’s low of 1,737.49 in sluggish session on Monday.

Theoretically, the FBM KLCI has carved out a negative signal, clearing the way for more downward pressure in the immediate term.

Bursa Malaysia lived up to technical expectations the next day.

Though the key index jumped 5.78 points to 1,743.27 at the starting bell and attempted to charge forward, riding on the strength of the moderate rebound in overnight Wall Street and steadier crude oil prices, the momentum soon punctured as the market could not attract follow-through interest, but drew a fresh bout of liquidation.

Meanwhile, Asian stocks wobbled as investors fretted about a slowdown in the world’s second-biggest economy after China’s retail sales figures and Industrial output data came in below forecasts while awaiting for new developments in US tax reform to emerge.

Tracking the regional declines, the local bourse reversed early gains to close 3.88 points lower at 1,733.61 in lacklustre trade on Tuesday.

After a short pause, Wall Street resumed the downwards correction process and crude oil prices tumbled on a surprise build-up in crude stockpiles.

In the region, stocks continued to struggle amid persistent profit-taking activity due to lack of leads on the horizon and in line with global declines, Bursa Malaysia dropped an extra 10.62 points to 1,722.99, also the day’s ebb, in lacklustre trade in mid-week.

Thereafter, global sentiment deterioated as more pullback on Wall Street and weakness in crude oil prices sent investors running to the sidelines.

Combined with a technical breakdown on the local market, blue chips took a beating on institutional selling while the key index lost 4.88 points to 1,718.11 on bearish extended mode on Thursday.

And yesterday, Bursa Malaysia stemmed a five-day losing streak, gaining 3.55 points to 1,721.66, as a quick and steep rebound in overseas equities encouraged investors to come out from the sidelines to seek value buys.

Statistics: On a Friday-to-Friday basis, the principal index declined 20.62 points, or 1.2% to 1,721.66 yesterday, versus 1,742.28 on Nov 10.

Total turnover for the week was 12.872 billion units worth RM11.829bil, against 14.823 billion shares amounting to RM11.363bil done previously.

Outlook: Improving sentiment over the ringgit, which reacted on Bank Negara Malaysia’s latest monetary policy statement, is also pegged to the fortunes of the oil markets.

The strength of the commodity has been growing since efforts to remedy the oil supply glut situation were renewed by the Organisation of Petroleum Exporting Countries (Opec).

While crude oil prices have dipped in recent days owing to reports of a significant increase in US oil production, Saudi Arabia’s constant reassurance that it will lead a push towards supply tightening has raised investors’ confidence. The Opec meeting to be held at the end of November will confirm this commitment to supply cuts.

As such, there is a good reason for foreign investors to return to underperforming Malaysian equity given the current cheap valuation of the ringgit.

Especially with major global markets trading at elevated levels, Bursa Malaysia presents a good venue for bargain hunting.

Technically, the daily slow-stochatic momentum index and the 14-day relative strength index are screaming oversold condition but other indicators are not looking very good, implying the local bourse may stage a recovery this week with limited upside.

The key index will now face significant resistance at the recent breakdown level of 1,730 points, followed by the 1,750-point barrier.

The next upper hurdle is resting at 1,770 points and the next, at the 1,800-point psychological level.

To the downside, a crack of the 1,700point floor will further damage the technical landscape of the local market going forward.