TECHNICAL REBOUND MAY WANE OFF
THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) plunged to a three-month low last week following a severe two-day selloff, prior to an oversold rebound.
The selloff appeared mild initially, triggered by Gamuda Bhd, which sank 24 per cent on Monday after the government proposed to terminate the underground portion of the Mass Rapid Transit Line 2 project due to disagreement over contract pricing.
The downside pressure intensified in the following days after the government gave hints about new taxes in the 2019 Budget during an investment conference. The selling pressure peaked on Thursday after United States markets plunged a day earlier on rising Treasury yield.
Last week, the FBM KLCI tumbled 46.41 points, or 2.6 per cent to 1,730.74, with Nestle (-RM1.80), Tenaga (-84 sen), Genting Bhd (-61 sen), Genting Malaysia (-59 sen), TM (-48 sen) and Axiata (-34 sen) accounting for most of the losses. Average daily traded volume rose to 2.5 billion shares worth RM2.5 billion, compared with 2.37 billion shares worth RM2.02 billion in the previous week.
While Friday’s technical rebound is expected to prevail this week, the momentum is likely to wane off as economic data from the US and China may prevent investors from keeping their anxiety at bay. China’s strongerthan-expected trade data for September will intensify speculation about the timing of a third tariff hike round as trade surplus with the US for the month shot up to a record US$34.13 billion, larger than Beijing’s overall trade surplus of US$31.69 billion.
In the immediate term, any downside pressure could be contained by the news of a potential meeting between President Donald Trump and China President Xi Jinping at the sideline of Group of 20 meeting in Buenos Aires next month.
Another focus this week will be on the US Federal Reserve’s (Fed) meeting minutes for September, which will be released on s Thursday. It is only expected to affirm market expectations on the Fed’s monetary tightening moves in the months ahead and sustain strength in the US treasury yield. China’s third-quarter gross domestic product number is also due for release on Friday. Consensus forecast is for its growth to narrow to 6.6 per cent from 6.7 per cent year-on-year in the second quarter.
Technical Outlook
Bursa Malaysia shares fell on Monday, led by the construction sector which slumped 10 per cent. The FBM KLCI slipped 1.4 points to close at 1,775.75, off an early low of 1,769.72 and high of 1,778.19, as losers swamped gainers 745 to 195 on total turnover of 2.37 billion shares worth RM1.82 billion.
Stocks fell further the next day, as sentiment on the local market remained negative amid challenging outlook on the construction sector, while investors’ risk appetite continued to shrink due to rising US bond yield and the state of China’s economy. The FBM KLCI fell 1.6 points to close at 1,774.15 on total turnover of 1.8 billion shares worth RM1.52 billion.
Blue chips slumped on Wednesday, with major utilities, telcos and consumer names leading losses amid concerns over competition resulted from sector reforms and new taxes expected to be proposed in the 2019 Budget. The FBM KLCI plunged 38.97 points, or 2.2 per cent, to close at 1,735.18 on active trade totalling 3.02 billion shares worth RM2.96 billion.
On Thursday, Bursa Malaysia suffered a second day of selldown, with added pressure from overnight selloffs in US stocks. The key index lost another 26.69 points, or 1.5 percent, to close at the day’s high of 1,708.49 on robust turnover of 3.1 billion shares worth RM3.7 billion.
Stocks staged oversold rebound on Friday, in line with regional gains as investors returned to bargain-hunt, but the cautious undertone persisted. The FBM KLCI recouped 22.25 points, or 1.3 percent, to end the week at 1,730.74, off an opening low of 1,703.92 and high of 1,732.16, as gainers led losers 578 to 334 on total turnover of 2.2 billion shares worth RM2.49 billion.
Trading range for the blue-chip benchmark index ballooned to 98.81 points last week, compared with 23.28 points in the previous week.
Last week’s steep selloff pushed the daily slow stochastics indicator deep into oversold territory before hooking up from Friday’s oversold rebound, but the weekly indicator travelled further south into neutral ground to reflect bearish momentum.
The 14-day Relative Strength Index (RSI) indicator also hooked up from the oversold region for a reading of 32.19 as of last Friday, but the 14-week RSI indicator softened to a reading of 40.32 to confirm the bearish momentum on the weekly stochastics indicator.
The daily Moving Average Convergence Divergence (MACD) trend indicator registered bearish expansion below the midpoint, while the weekly MACD indicator’s signal line hooked down for an early sell trigger, a further confirmation on the bearish momentum. The 14-day Directional Movement Index (DMI) trend indicator stayed bearish with the +DI and -DI lines expanding negatively, implying further trend weakness ahead.
Conclusion
While Friday’s relief rebound may follow-through early this week, lack of positive catalysts, weak buying momentum, overhanging fears over rising US interest rates, slowing global economy and rich market valuations should restrict upside potential. Technically, while positive shortterm momentum point to further rebound upside, the unchanged negative medium-term momentum indications imply potential for further correction ahead.
On the index, immediate overhead resistance areas are at 1,742 and 1,762, the respective 50%FR and 38.2%FR of the rise from 1,657 low on June 28 to the 1,826.9 high of 28 August, followed by 1,787, the 23.6%FR, and subsequently the 200-day moving average at 1,802. Crucial retracement supports are at 1,697, the 76.4%FR, followed by 1,680 and then 1,657.
Lack of positive catalysts, weak buying momentum, overhanging fears over rising US interest rates, slowing global economy and rich market valuations should restrict upside potential.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.