CATALYSTS NEEDED TO SUSTAIN GAINS
AFTER the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) climbed to a near three-month high last Wednesday on easing geopolitical tensions over North Korea, subsequent profit-taking interest following weaker-than-expected economic numbers from China kept gains in check.
However, late buying in selected index heavyweights ahead of the weekend managed to lift the index to a positive close.
The FBM KLCI added 6.43 points, or 0.36 per cent, week-onweek to close on Friday at 1,786.33, with gains in Petronas Gas Bhd (+40 sen), Hong Leong Bank Malaysia (+34 sen), AmBank (+24 sen) and Hong Leong Financial Group (+22 sen) offsetting losses on Kuala Lumpur Kepong Bhd (-14 sen) and Petronas Chemicals Group Bhd (-12 sen). Average daily traded volume and value steadied at 2.62 billion shares and RM2.15 billion, respectively, compared with 2.58 billion shares and RM2.16 billion average in the previous week.
The benchmark index’s performance early this week is expected to be muted, mainly confined by what will transpire at the United Nations (UN) General Assembly (UNGA) and the United States Federal Reserve’s (Fed) policy meeting tomorrow and Wednesday. Investors will be watching closely what transpires at the UN assembly, which usually starts on Tuesday in the third week of September.
The Federal Open Market Committee meeting this week is associated with a summary of economic projections and a press conference by Fed chair Jennet Yellen.
It will be interesting to hear her assessment of current economic conditions in the US, subsequent to the damage caused by hurricanes Harvey and Irma in Texas and Florida, as that may provide some clues on the timing of next interest rate hike and the unwinding of quantitative easing in the world’s largest economy.
The Fed indicated in its last meeting that the unwinding of its balance sheet will happen relatively soon.
Locally, inflation for last month and mid-September will be announced on Wednesday and Friday, respectively.
Consensus expectations are for the consumer price index to come in a tad lower at 3.1 per cent year-on-year versus July’s 3.2 per cent.
Technical Outlook
Bursa shares gained last Monday on rotational buying interest in lower-liner steel-related counters, while blue chips recovered mildly in line with the region. The FBM KLCI rose 2.84 points to close at 1,782.74, off an early low of 1,778.27 and high of 1,784.25, as gainers led losers 527 to 350 on robust turnover of 2.73 billion shares worth RM2.16 billion. Lessening worries on US economy helped the local market surge further the subsequent day.
The FBM KLCI jumped 7.12 points to close at the day’s high of 1,789.86, off an early low of 1,781.54 as gainers led losers 489 to 395 on strong total trade of 3.66 billion shares worth RM2.25 billion.
Despite the record highs on overnight US stocks, the local benchmark slipped from a near three-month high early on Wednesday as profit-taking and selling checked gains. The FBM KLCI fell 3.79 points to close at 1,786.07, off an early high of 1,793.22 and low of 1,785.50, as losers beat gainers 480 to 385 on lower turnover of 2.69 billion shares worth RM1.85 billion.
Stocks extended profit-taking the following day. The FBM KLCI fell 4.7 points to close at 1,781.37, off an early high of 1,788.47 and low of 1,780.79 as losers beat gainers 492 to 397 on much slower turnover of 1.89 billion shares worth RM1.81 billion.
Late buying in selected index heavyweights ahead of the weekend managed to offset earlier profit-taking interest on Friday, as market sentiment stayed cautious amid revived geopolitical concerns following another missile launch from North Korea over Japan. The index ended up 4.96 points at the day’s high of 1,786.33, off an earlier low of 1,776.87 as losers edged gainers 509 to 369 on higher turnover totalling 2.14 billion shares worth RM2.69 billion.
The trading range for the bluechip benchmark index last week shrank slightly to 16.35 points, compared with the 19.64-point range the previous week. For the week, the FBM Emas Index increased 34.40 points, or 0.27 per cent, to close at 12,723.68, while the FBM Small Cap Index added 106.80 points, or 0.63 per cent, to 16,984.96 as small-cap stocks managed to sustain retail bargain hunting interest as rotational plays persisted.
A short-term sell signal flashed on the daily slow stochastics indicator for the FBM KLCI from the overbought zone following the profit-taking dip in the later part of last week, but this was offset by a rising weekly stochastics indicator. The 14-day Relative Strength Index (RSI) indicator also hooked up to a better reading of 58.73 after Friday’s late spike, while the 14-week RSI improved to a more positive reading of 63.69.
In the meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator strengthened further after triggering a buy in the previous week, while the weekly MACD indicator’s signal line was beginning to level off. The +DI and -DI lines on the 14-day Directional Movement Index trend indicator registered bullish expansion on a rising average directional index line, suggesting good potential to move back into trending mode.
Conclusion
Even though there’s a general improvement in momentum and trend indicators on the FBM KLCI following last week’s recovery, follow-through buying and market breadth need to further strengthen and sustain upside, given that the index is approaching the formidable two-year high resistance. Key upside catalysts, such as further recovery in the local currency or global oil prices will be crucial to support a convincing breakout above the 1,796 peak.
On the index, expect formidable resistance from the June 16 peak of 1,796 with tougher hurdles from 1,800, 1,815 and subsequently 1,823 in the May 2015 peak. Immediate uptrend support is at 1,780 and 1,775, the respective rising 10- and 30-day moving averages, with better support at 1,769, the 50-day moving average.
The benchmark index’s performance early this week is expected to be muted, mainly confined by what will transpire at the United Nations General Assembly and the US Federal Reserve’s policy meeting tomorrow and Wednesday.