BEARISH MOMENTUM TO PREVAIL

THE FTSE Bursa Malaysia KLCI (FBM KLCI) sank to a fresh two-year low last week, prior to a two-day relief rebound, sparked by China’s offer to reduce import tariffs on United States-made cars and British Prime Minister Theresa May’s confidence vote win.

However, profit-taking and selling pressure returned to depress stocks ahead of the weekend, triggered by weaker-than-expected economic data from China.

For the week, the FBM KLCI fell 18.6 points, or 1.1 per cent, to 1,661.96 points, with gains on Nestle (+60 sen), Petronas Dagangan (+46 sen) and Hap Seng Consolidated (+16 sen) overshadowed by losses in Tenaga (-44 sen), Sime Darby (-26 sen), Hong Leong Bank (-20 sen), Genting Bhd (-19 sen), Maxis (-15 sen) and DiGi.com (-14 sen).

Average daily traded volume and value dwindled to 1.84 billion shares worth RM1.57 billion last week, compared with 2.11 billion shares and RM1.85 billion the previous week.

The sombre mood in the local equity market, driven by worries over the US-China trade war, slowing global economy and continued monetary tightening in the US should persist in the near term but China’s announcement last Friday that it would remove the retaliatory duty on imported cars from the US and its willingness to restart purchases of American corn could offer some lift.

The trade dispute between the US and China is already biting into the latter’s economy, as shown in last week’s softer retail sales and industrial production growth for November. The weakness was apparent in its vehicle sales last month, which plunged 13.9 per cent year-on-year to 2.55 million units.

More clarity on policy matters should be forth coming after the annual economic policy-setting meeting among China’s leaders from Wednesday to Friday.

The US Federal Reserve (Fed) meeting this week could inject some positive vibes into the domestic equity market if it refrains from further tightening and appears dovish in its future guidance.

The market expects the Fed to raise interest rates by a quarterpoint to a range of between 2.25 and 2.5 per cent on Wednesday and pencil in only two hikes next year, down from three projected earlier.

If the Fed stands pat in its policy meeting and provides a dovish guidance, it will provide room for Bank Negara Malaysia to maintain its Overnight Policy Rate at the current level for a prolonged period or cut it in the future if the economic conditions warrant.

Technical outlook

The Bursa Malaysia closed in the red for the fifth trading day last Monday. The FBM KLCI fell 17.23 points to 1,663.31 as losers thrashed gainers 612 to 194 on a robust turnover of 2.65 billion shares worth RM1.37 billion.

Stocks extended losses the next day, with the index sliding to a fresh two-year low. The KLCI lost 10.68 points to settle at the day’s low of 1,652.63 as losers beat gainers 549 to 253 on slow trade totaling 1.43 billion shares worth RM1.51 billion.

Stocks rebounded on Wednesday. The KLCI rose 10.64 points to 1,663.27 as gainers edged losers 394 to 371 on higher turnover of 2.06 billion shares worth RM1.93 billion.

The market rebounded for a second day on Thursday. The FBM KLCI added 12.73 points to 1,676 with losers edging gainers 397 to 371 on cautious trade totaling 1.56 billion shares worth RM1.65 billion.

Profit-taking and selling resumed on Friday, dragging stocks lower from the prior two-day relief rebound. The index slumped 14.04 points to 1,661.96 as losers beat gainers 541 to 242 on a turnover of 1.49 billion shares worth RM1.38 billion.

Trading range for the blue-chip benchmark index was 25.28 points last week, compared with the 29.79 points range the previous week, hitting a fresh two-year low before bouncing back for a twoday technical rebound which fizzled out ahead of the weekend.

For the week, the FBM-EMAS Index shed 160.65 points, or 1.4 per cent, to 11,419.11, while the FBMSmall Cap Index slumped 465.80 points, or 3.9 per cent to 11,556.75, as small cap stocks suffered heavy losses due to retailers bailing out from speculative issues.

Due to the extreme bearish momentum last week, the daily slow stochastics indicator for the FBM KLCI re-hooked downwards despite being persistently oversold due to sustained selling pressure on key index heavyweights, while the weekly indicator dipped into grossly oversold territory.

The 14-day Relative Strength Index (RSI) indicator registered a hook-down due to last Friday’s steep correction, dragging along the 14-week RSI indicator down to a bearish reading of 33.30.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) trigger line rehooked downwards after flashing a sell signal the previous week, worsening the weekly MACD’s bearish expansion to suggest inevitable correction ahead.

On the 14-day Directional Movement Index (DMI) trend indicator, the +DI and -DI lines extended their bearish expansion on a rising ADX line, signaling a sustained downtrend.

Conclusion

Failure of last week’s relief rebound to reverse extreme bearish market conditions does not bode well for the sustainability of technical rebound in the immediate term.

Despite excessively oversold technical conditions, bearish momentum prevailed due to current weak buying momentum as investors stayed on sidelines.

With crucial supports from the October 25 low of 1,670 and 1,657, the June 28 pivot low broken during last week’s trade, further downside volatility should be expected towards 1,617, the 123.6 per cent Fibonacci Projection (FP) level. Next crucial support will be at 1,593, the 138.2 per cent FP.

Meanwhile, immediate upside hurdles will be from the falling 10-day and 30-day moving averages at 1,676 and 1,691 respectively, followed by 1,700, with tougher resistance at 1,722, 1,742 and 1,762, the respective 61.8 per cent FR, 50 per cent FR and 38.2 per cent FR of the rise from 1,657 low on 28 June to the 1,826.9 high of August 28.

The United States Federal Reserve meeting this week could inject some positive vibes into our domestic equity market if the monetary policy making body refrains from further tightening and appears dovish in its future guidance.

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