Are markets poised for a technical rebound?

PETALING JAYA: The steep declines on Wall Street on Monday changed the technical landscape of global markets.

At the week’s open, the bleeding in US markets accelerated with both the S&P 500 and Dow Jones indexes falling more than 4% while the Nasdaq 100 dropped 3.9%.

Coupled with losses from the previous session, US markets transitioned from an overbought situation to oversold.

As expected, the sharp decline in US equities was tracked by Asian markets, leading to a bloodbath at Tuesday’s open. Japan’s Nikkei 225 Index fell as much as 1,600 points or 7% before it clawed back to end the session 4.7% lower at 21,610.

Bursa Malaysia was not spared the steep retracement, and the benchmark FBM KLCI gapped down nearly 40 points at the open as investors fled the imminent pullback.

By market close, the index of 30-stock blue chips came to rest 2.2% lower at 1,812.45, having dipped below the 1,800 key support in intra-day trading.

However, the technicals suggest there is still room to fall as the indicators have yet to enter oversold territory.

Further negative retracement looks to be on the cards before the market regains its footing. Should 1,800 fail to hold, the 1,785 mark in proximity of the 50-day simple moving average poses as the next cushion.

Of course, much depends on the performance of US markets.

Given what many are considering healthy economic fundamentals, the pullback on Wall Street may just be a spate of panic selling, bringing a temporary halt to the bull market. Some analysts say a correction will put equity prices on a more sustainable footing.

Already, the technical indicators of the three major indexes show that US equities are oversold, lending hope that they will seek a positive retracement to more neutral ground.

The slow-stochastic and 14-day RSI of the Dow Jones, S&P 500 and Nasdaq 100 indicate oversold conditions and a potential upwards bounce.

Nevertheless, the indices could fall further into more extreme oversold conditions before they make a comeback.

Judging by the performance of the futures markets, US equities may be set for a more positive opening. At press time, Dow Jones futures reversed earlier losses to rise half a per cent while the S&P 500 and Nasdaq 100 futures were both up 1.2%.