PROFIT-TAKING
THE FTSE Bursa Malaysia FBM KLCI (FBM KLCI) shot up to a new 23-month high on Friday, sparked by a global rally after the first round of French polls pointed to a likely victory for euro-friendly candidate Emmanuel Macron.
The strong ringgit, which firmed to 4.34 to the US dollar, and rally on the United States stocks also helped fuel upside momentum, but stocks paused for late week profit-taking as investors digested the tax reform proposal from the Trump administration.
For the week, the FBM KLCI added 12.01 points, or 0.68 per cent, to 1,768.06, with Hong Leong Financial Group (+88 sen), AmBank (+31 sen), KLK (+20 sen), RHB Bank (+20 sen) and Tenaga (+20 sen) accounting for most of the gains.
Average daily traded volume and value recovered to 3.44 billion shares and 2.98 billion, compared with the 2.86 billion shares and RM2.26 billion average, respectively, the previous week, as buying momentum recovered on lower liners and the small-cap sector.
FBM KLCI has risen 7.7 per cent in the first four months of this year, driven mainly by the inflow of foreign funds that have snapped up index heavyweight banking and plantation stocks.
Key reasons for the renewed interest are the brighter prospects for economic growth and corporate earnings, and the gross underperformance of the ringgit since crude oil prices plunged since mid-2014.
The strength of the US dollar and expectations of greater monetary tightening in the US is a significant factor that underscored the ringgit’s weakness.
The US economy expanded at a 0.7 per cent annualised rate in the first quarter, its slowest pace in three years and lower than estimated one per cent, and the prior quarter’s 2.1 per cent, due to weaker consumption that offset a pickup in investment led by housing and oil drilling.
While economists largely brushed off the figure as a blip and not a sign of stagnation, the Fed is expected to stay pat in its policy meeting tomorrow and Wednesday.
Meanwhile, Malaysia’s trade data for last month is expected to fall within expectations and indicate sustained recovery in exports. Consensus forecast is pointing towards a double-digit growth of 18.6 per cent in exports and trade balance rising to RM9.4 billion, from RM8.7 billion previously.
That aside, with the FBM KLCI appearing overbought currently, it could be subjected to some healthy profit-taking corrections this week, which could refresh thoughts about the popular adage “Sell in May and Go Away”.
However, any corrections in the local market are expected to be shallow and cushioned by buying support from local funds.
Technical Outlook
Bursa Malaysia shares surged to a fresh 23-month high last Tuesday, lifted by a global rally. The FBM KLCI climbed 9.75 points to close at 1,765.80, off an early low of 1,758.47 and high of 1,765.94 as gainers led losers 559 to 388 on stronger turnover of 3.66 billion shares worth RM3.11 billion. Blue chips sustained gains to another new 23-month high the next day.
The index added 3.12 points to settle at 1,768.92, off an early low of 1,764.62 and high of 1,769.68, as gainers edged losers 506 to 410 on steady turnover of 3.55 billion shares worth RM3.13 billion.
Stocks slipped into profit-taking consolidation mode on Thursday.
The FBM KLCI ended one point down at 1,767.92, after ranging between a high of 1,770.90 and low of 1,766.38 as gainers equalled losers at 448 on slower turnover of 3.45 billion shares worth RM2.77 billion.
The local market paused for profit-taking breather ahead of the weekend.
The index closed flat at 1,768.06, after oscillating between a 23-month high of 1,772.21 and low of 1,765.57 as gainers led losers 544 to 403 on moderating turnover totalling 3.1 billion shares worth RM2.89 billion.
Trading range for the blue-chip benchmark index last week shrank to 13.74 points compared with the 26.92-point range the previous week, after the index gapped higher to trade at levels not seen since May 2015.
For the week, the FBM Emas Index gained 140.94 points, or 1.13 per cent, to 12,631.52, while the FBM Small Cap Index rose 277.71 points, or 1.6 per cent, to 17,661.72, as small-cap stocks attracted bargain hunters with resurgent buying momentum.
The daily slow stochastic momentum indicator for the FBM KLCI is overbought and hooking down, signalling a likely profittaking correction this week, but the weekly indicator re-hooked upwards in overbought territory.
The 14-day Relative Strength Index (RSI) indicator has levelled off, but still managed a positive reading of 68.53 as of last Friday, while the 14-week RSI sustained a rise to a slight overbought reading of 70.65.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) indicator has turned bullish after registering a buy signal, while the uptrend momentum on the weekly MACD indicator displayed renewed vigour.
As for the 14-day Directional Movement Index trend indicator, the +DI and –DI liners were expanding positively on a rising ADX line, signalling a return to uptrend mode.
Conclusion Short-term overbought momentum on the FBM KLCI, sparked by last week’s gap-up breakout rally to a near two-year high, highlighted by the daily slow stochastics hooking down in overbought territory, implied high probability for profit-taking correction this week.
Nonetheless, with trend indicators turning bullish again to signal uptrend resumption, a pullback should be shallow with bargain hunters cushioning downside, with the ringgit’s strength and friendlier external sentiment providing additional cushion.
On the index, immediate upside hurdle is seen at 1,782, the 76.4 per cent Fibonacci Retracement of the 1,867 to 1,503 downswing, followed by 1,800 and the May 18 2015 high of 1,823. Key uptrend supports cushioning downside will be at 1,754, 1,748 and 1,735, the respective rising of 10, 30 and 50-day moving average levels.