MORE VOLATILITY ON TRADE WAR FEARS

LAST week the FTSE Bursa Malaysia KLCI (FBM KLCI) fell on end-month profit-taking and selling, in line with regional weakness after China February output slowed more than expected.

The new United States Federal Reserve (Fed) chairman Jerome Powell’s hawkish comments on inflation also did not help, raising concerns there could be four more interest rate hikes this year, made worse by the US President Donald Trump’s threat to impose punitive tariffs of 25 per cent on steel and 10 per cent on aluminium, which forced steel producers and carmakers in Asia to slump ahead of the weekend.

For the week, the FBM KLCI eased 5.43 points, or 0.29 per cent, to 1,856.07 as gains on Nestle (+RM2.90), Hong Leong Bank (+RM1.28 sen) and HLFG (+40 sen) were overshadowed by losses on AmBank (-41 sen), Axiata (-32 sen), Press Metal (-28 sen) and Petronas Gas (-26 sen).

Average daily traded volume improved mildly to 2.87 billion shares worth RM2.84 billion las week compared with 2.56 billion shares worth RM2.25 billion average in the previous week.

The fourth-quarter 2017 results reporting season that ended last week did not help much to lift market sentiment as it was largely within expectations.

Coming from a lower singledigit earnings growth last year, stronger growth expectation consensus of 10.0 and 6.8 per cent this year and next year, respectively, for the FBM KLCI component stocks did not create much excitement.

Nonetheless, the earnings growth forecasts appeared realistic based on the gradual recovery of the economic growth cycle and commodity prices that should benefit index heavyweight sectors, such as banking, plantations and oil and gas.

Given the choppy external environment, the million-dollar question now is whether the stock market rally that resumed after a steep correction in early February will sustain.

The banking sector did not disappoint as it showed significant earnings improvement in the just completed results season with strong top-line growth and lower loan allowances.

As the outlook for the sector remains positive with a revival in loan growth, leaner cost structure and better regional asset quality, interest in the banking sector may not dissipate anytime soon.

Technical Outlook

Bursa Malaysia’s blue chips stayed range bound on Monday, despite the firmer regional tone due to spillovers from the strong session on the US stock market in the previous Friday.

The FBM KLCI ended down 1.42 points at 1,860.08, after ranging between early high of 1,867.98 and low of 1,859.98, as losers edged gainers 513 to 479 on total turnover of 2.71 billion shares worth RM2.74 billion.

It climbed to close at a more than three-year high the next day, helped by strength in Hong Leong Bank and key plantation stocks on better-than-expected earnings.

The key index rose 11.38 points to end at 1,871.46, off an early high of 1,872.35 and low of 1,865.79, but losers beat gainers 563 to 443 on turnover totalling 2.76 billion shares worth RM2.89 billion.

Blue chips slumped on Wednesday due to end-month profit-taking, falling in line with regional bourses after China February output slowed more than expected.

The index lost 15.26 points to settle at the day’s low of 1,856.2, off an earlier high of 1,872.02, as losers trashed gainers 812 to 265 on higher turnover totalling 2.95 billion shares worth RM3.63billion.

While blue chips recovered the subsequent day due to bargainhunting after the previous day’s sell-off, the broader market stayed soft as the US Fed’s hawkish tone increased concerns over interest rate hikes. The FBM KLCI gained 4.66 points to close at 1,860.86, off an early low of 1,851.51 and high of 1,862.81 as losers swarmed gainers 648 to 361 on higher turnover totalling 3.39 billion shares worth RM2.5 billion.

On Friday, market sentiment turned bleak after Trump threatened to impose tariffs of 25 per cent on steel and 10 per cent for aluminium, sending stocks of steel producers and carmakers in Asia to slump. The index gave back 4.79 points to close the week at 1,856.07 as losers beat gainers 656 to 291 on reduced turnover of 2.55 billion shares worth RM2.41 billion.

Trading range for the index was 20.84 points, compared with 23.17 points in the previous week.

The FBM EMAS Index shed 139.83 points, or 1.05 per cent, to 13,173.95, while the FBM Small Cap Index sank 3.5 per cent to 16,433.86, as profit-taking and selling momentum increased on small cap stocks.

A sell signal registered on the daily slow stochastic momentum indicator on the FBM KLCI with the trigger line hooking down from the overbought zone.

The 14-day Relative Strength Index (RSI) eased to a lower reading of 55.78 while the 14-week RSI dipped to a lesser reading of 65.25 as of last Friday.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line also

As technical momentum indicators for the FBM KLCI have markedly worsened after last week’s correction, expect more downside volatility as investors refrain from bargain hunting despite the heavy losses seen on small caps and lower liners.

turned south to reverse the previous week’s mild buy signal, but the weekly MACD indicator managed to sustain its uptrend.

The +DI and –DI lines on the 14day Directional Movement Index (DMI) are contracting towards each other on a falling ADX line, suggesting the absence of a trend.

Conclusion

As technical momentum indicators for the FBM KLCI have markedly worsened after last week’s correction, expect more downside volatility as investors refrain from bargain-hunting despite the heavy losses seen on small caps and lower liners.

Given the unfortunate correction and increased volatility in the US stock market last week and fears that the US president’s tariff threat on steel and aluminium will fuel a global trade war, expect more choppy trade this week.

Immediate support for the index will be at 1,848, the 30-day moving average, followed by the 50-day moving average at 1,824, while stronger support is at 1,800. Crucial resistance-turn-support level is at 1,796, the June 2017 peak matching the February 6 pivot low.

Immediate resistance will be last week’s high of 1,872, with the February 2 peak of 1,880 and upper Bollinger band at 1,881 as tougher upside hurdles.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.