MARKET LIKELY TO CONGEST SIDEWAYS

THE local stock market fell into profit-taking correction mode last week, depressed by investor worries that rising interest rates will adversely impact global growth as United States Treasury yields spiked up to three per cent, increasing concerns that it will raise companies borrowing costs and depress profits.

While easing downward momentum and cheaper prices encouraged bargain-hunting on Friday, most investors remained on the sidelines amid caution ahead of the 14th General Election (GE14) nomination day over the weekend.

For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) lost 24.28 points, or 1.29 per cent, to 1,863.47, with most of the fall contributed by Nestle (-RM9.60), Petronas Dagangan (-64sen), Petronas Gas (-62sen), Public Bank (-60sen) and Hong Leong Bank (-54sen).

Average daily traded volume shrank to 1.88 billion shares worth RM1.99 billion last week compared with 2.61 billion shares value at RM2.33 billion, respectively, in the previous week.

External concerns played a big role in tempering investor confidence on the equity market last week, especially after the US 10year Treasury yields rose above three per cent for the first time since January 2014.

Investors will be watching closely the economic data from the US this week and the US Federal Reserve’s (Fed) language in its customary brief policy statement on Wednesday, after its third meeting for the year.

The US core personal consumption expenditures (PCE) figure that will be released two days earlier may influence the Fed statement if consensus are right about the two per cent year-on-year (YoY) increase in March core PCE versus 1.6 per cent in February.

The non-farm payroll employment data for this month that will be released on Friday could underscore the current upbeat sentiment about the economy and this would influence the Treasury yield as well.

China will be releasing its Purchasing Managers’ Index for this month this week, which will provide some clues on its manufacturing and services sectors strength.

Consensus expectations are pointing to slightly weaker figures compared with last month.

Malaysia will also release its trade data for last month on Friday.

Technical Outlook

Bursa Malaysia shares slipped into profit-taking mode on Monday. The FBM KLCI shed 7.39 points to settle at 1,880.36, off an early high of 1,891.59 and low of 1,878.37, as losers trashed gainers 711 to 216 on cautious trade worth RM1.66 billion.

Blue-chips extended profittaking correction the next day, with investors worried about global trade tensions and rising interest rates. The FBM KLCI lost 15.02 points to close at the day’s low of 1,865.34 as losers beat gainers 574 to 291 on a moderate turnover of 1.92 billion shares worth RM2.32 billion.

Profit-taking on blue chips sustained for a third straight session on Wednesday. The FBM KLCI slumped 13.41 points to 1,851.93 points, off the opening high of 1,863.75 and low of 1,850.28 as losers swarmed gainers 680 to 219 on slower turnover of 1.87 billion shares worth RM1.97 billion.

Stocks stayed soft as profit-taking interest persisted the following day with investors worried that rising interest rates will raise borrowing costs. The FBM KLCI ended flat at 1,852.27 after ranging between 1,863.57 and 1,846.54, as gainers edged losers 442 to 349 on improved turnover of 2.04 billion shares worth RM2.13 billion.

Easing downwards momentum encouraged bargain-hunting interest on Friday, but most investors remained on the sidelines amid caution ahead of the nomination of candidates for GE14. The index recouped 11.2 points to close the week at 1,863.47, off a low of 1,856.59 and a high of 1,866.88, as gainers led losers 452 to 338 on a lower turnover totaling 1.63 billion shares worth RM1.87 billion.

Trading range for the blue-chip benchmark index expanded to 45.05 points last week compared with the 28.82-point range the previous week as the previous two week’s rally to record highs evaporated on profit-taking pressure.

For the week, the FBM EMAS Index shed 179.81 points, or 1.37 per cent, to 12,988.73, while the FBM Small Cap Index slumped 345.50 points, or 2.32 per cent to 14,545.46, given the persistent profit-taking and selling pressure depressing small cap stocks.

Following last week’s correction, the daily slow stochastic momentum indicator for the FBM KLCI has been fully neutralised from its previous extreme overbought position, while the weekly indicator hooked back down for a sell signal in the overbought zone. The 14-day Relative Strength Index (RSI) hooked up for a neutral reading of 50.08 after the past two days rebound, but the 14-week RSI hooked down for a softer reading of 58.98.

On the other hand, the daily Moving Average Convergence Divergence (MACD) trend indicator flashed a sell signal on the back of last week’s correction, while the weekly MACD indicator’s signal line re-hooked downwards to negate upside momentum. As for the 14-day Directional Movement Index (DMI) indicator, the +DI and –DI lines also crossed for a sell on a leveling ADX line, suggesting weakness in trend.

Conclusion

While short-term overbought momentum has been fully neutralised following last week’s steep profit-taking correction, weak trend indicators suggest that more base building is required to rebuild a stronger support platform to anchor the subsequent recovery leg.

Meanwhile, oil and gas related stocks should recover this week as the persistently high global crude oil prices caused by higher possibility that the US could renew trade sanctions with Iran this month which will limit supply with the worsening political and economic condition in Venezuela adding fuel to the fire.

Immediate support for the index remains at 1,840, which represents 23.6 per cent FR of December last year’s low (1,708) to the February this year’s peak (1,880), followed by the 100-day ma (1,828), lower Bollinger band (1,825) and the 4/4/18 pivot low of 1,811. Overhead resistance will be 1,880 and the recent high of 1,896.

While shortterm overbought momentum has been fully neutralised following last week’s steep profittaking correction, weak trend indicators suggest that more base building is required to rebuild a stronger support platform to anchor the subsequent recovery leg.

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