LOCAL CATALYSTS LIKELY TO LIFT MART

DESPITE weaker oil prices and scant leads with key North Asian markets closed for holidays, and the last leg of mixed first-quarter (Q1) earnings reports last week restricting trading commitments, the local market bounced back strongly on Friday, boosted by Wall Street’s strength.

Last week, the benchmark FTSE Bursa Malaysia KLCI Index (FBM KLCI) added 4.65 points, or 0.26 per cent, to 1,776.95, with gains on Hong Leong Bank (+72 sen), Hong Leong Financial Group (+42 sen), IHH Healthcare (+40 sen) and Sime Darby (+27 sen) offsetting losses on BAT (-74 sen), Genting Malaysia (-25 sen) and RHB Bank (-23 sen). Average daily traded volume and value declined further to 2.47 billion shares and RM2.80 billion, compared with the 3.24 billion shares and RM2.88 billion average respectively the previous week, as buying momentum eased on the broad market due to cautious market undertone for most of the week.

A 14-point recovery in the benchmark FBM KLCI on Friday helped lift lacklustre trading and end the week on a slightly positive note as most regional markets reacted similarly to the United States’ overnight performance after its private payroll and manufacturing figures for last month beat expectations.

The slight uptick in calendar year 2017 (CY17) consensus earnings growth forecast for the FBM KLCI 30 component stocks, post conclusion of Q1 results season, also could have lifted sentiment momentarily as it was raised to 5.8 per cent from 5.5 per cent for CY17. These factors contained the not-so-upbeat reaction to a potential merger between RHB Banking Group and AmBank Group as their share prices reacted negatively to the news post lifting of suspension.

Looking ahead, the benchmark index may hold on to the gains early this week. April trade numbers today could sustain the momentum if they beat expectations. Other than that, the market is anticipating more news with regards to Chinese investments, especially details on last week’s news about ongoing talks on ports and pipeline projects between the countries.

Any positive vibe could take a breather as we approach the tail end of the week due to the impending election in the United Kingdom on Thursday. Investors are also waiting on the sidelines for the US Federal Reserve’s decision on monetary tightening in its June 13 and 14 meeting.

Technical Outlook

Bursa Malaysia shares closed lower last Monday, dragged down by worries after North Korea launched another ballistic missile test and a few major global markets were closed for holidays. The FBM KLCI slid 7.41 points to end at the day’s low of 1,764.89, off the opening high of 1,774.43, as losers swarmed gainers 688 to 224 on slow turnover of 2.31 billion shares worth RM1.87 billion.

While blue chips stayed range bound the next day, the broader market was softer. The FBM KLCI ended flat at 1,765.34, after being trapped within narrow range bordering 1,767.40 and 1,762.43, as losers overwhelmed gainers 680 to 235 on cautious trade totalling 2.61 billion shares worth RM2.15 billion.

Stocks closed mixed on Wednesday amid lack of positive domestic leads. The FBM KLCI again ended flat at 1,765.87, after oscillating between a high of 1,769.46 and low of 1,761.11, as losers edged gainers 501 to 437 on total turnover of 2.74 billion shares worth RM5.17 billion. The local market extended sideways range bound trade the subsequent day, as investors were distracted by the last leg of mixed Q1 earnings reports while mixed regional markets also discouraged trading commitment. The FBM KLCI ended 2.76 points lower at 1,763.11, off an opening high of 1,765.88 and low of 1,759.73, as losers edged gainers 505 to 414 on slower total turnover of 2.21 billion shares worth RM2.23 billion.

The index surged 13.84 points on Friday to close at the day’s high of 1,776.95, off the opening low of 1,766.25, as gainers beat losers 732 to 247 on improved turnover totalling 2.45 billion shares worth RM2.58 billion.

Trading range for the blue-chip benchmark index last week shrank to 15.43 points, compared with the 25.5-point range the previous week, as most key index heavyweights stayed range bound. For the week, the FBM Emas Index eased 24.30 points, or 0.19 per cent, to 12,661.58, while the FBM Small Cap Index slumped 265.98 points, or 1.49 per cent, to 17,576.12, as smallcap stocks fell into profit-taking correction mode.

Following last Friday’s strong rebound, a buy signal flashed from the oversold region of the daily slow stochastic momentum indicator for the FBM KLCI, while the weekly indicator’s signal line hooked up in overbought territory. The 14-day Relative Strength Index (RSI) indicator bounced back sharply from the mid-point to negate the prior bearish divergence signal, while the 14-week RSI improved further to a higher reading of 69.37.

In the meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator’s trigger line has hooked up slightly, but the bearish divergence is still intact, while the weekly MACD indicator’s signal line continues to level off. The 14-day Directional Movement Index (DMI) trend indicator retained its uptrend signal, with the +DI and –DI lines expanding on an easing ADX line.

Conclusion

Last Friday’s turnaround in sentiment was largely driven externally, sparked by improving outlook for global growth, but if local catalysts resurface by way of any major project proposals for infrastructure, or Bandar Malaysia, trading momentum should recover significantly.

Technically, while the daily stochastic buy signal triggered by last Friday’s sharp rebound is encouraging, a confirmed breakout above the recent two-year high of 1,787 is crucial to neutralise the recent bearish divergence signal and promote further upside ahead.

Immediate uptrend support for the index remained at the 50-day moving average level at 1,758, with better supports at 1,740, then 1,729. Immediate upside hurdle for the benchmark stayed at the recent two-year high of 1,787, followed by the 1,800 psychological level and May 18 2015 high of 1,823.

A 14-point recovery in the benchmark FBM KLCI on Friday helped lift lacklustre trading and end the week on a slightly positive note.